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Investing.com -- Deutsche Bank upgraded Frontier Group Holdings to Buy from Hold, saying the low-fare carrier is set to be the biggest beneficiary of Spirit Airlines’ bankruptcy because of their overlapping networks.
About 35% of Frontier’s routes overlap with Spirit’s in the current quarter, and that figure should rise to roughly 40% by the December quarter after Frontier adds 20 new routes later this year, 18 of which are currently served by Spirit.
Spirit, which filed for bankruptcy protection, has said it plans to use Chapter 11 to shed billions in liabilities and cut costs.
Deutsche Bank said that given the weight of aircraft-related debt, Spirit is likely to emerge from restructuring with a smaller fleet. Spirit has 214 planes but only 157 in use, with 38 grounded due to Pratt & Whitney engine issues and 19 set to be sold. The bank expects the active fleet could shrink by another 50 aircraft.
Deutsche Bank raised its price target for Frontier to $8 from $4, implying 63% upside from its current levels.
That would value the stock at 8.5 times its 2025 EBITDAR forecast, above its historical trading range of 5 to 8 times, but still within range for 2026 and 2027, which the bank views as more normal earnings years.
Risks to the call include a weaker U.S. economy, jet fuel volatility, tighter regulation, labor costs and geopolitical disruptions.