On Monday, Citi updated its assessment of Spirit Airlines (NYSE:SAVE), raising the price target to $4.00 from $3.95, while retaining a Sell rating on the stock. The adjustment comes as the analyst observes that the airline is on a path to improved operational cash flow.
Spirit Airlines has recently filed a mixed shelf registration, which, according to Citi, could serve as a significant tool to help stabilize the company's financial situation. Additionally, the possibility of the U.S. Treasury Department purchasing a small stake in the airline was acknowledged as potentially beneficial.
The analyst pointed out that while these developments might aid Spirit's financial stability, they do not necessarily signal positive outcomes for current shareholders. The concerns highlighted include the risk of equity dilution and the suggestion that the shelf filing indicates that the anticipated improvement in operational cash flow may not be enough on its own.
Furthermore, the analyst differentiated between the government's potential support for the airline and the implications for equity holders. The potential share purchase by the U.S. Treasury is seen as a move to assist the airline, but it does not equate to a rescue of the equity holders' interests. This distinction underpins Citi's decision to maintain the Sell rating on Spirit Airlines shares.
InvestingPro Insights
As Spirit Airlines (NYSE:SAVE) navigates its financial recovery, InvestingPro data and tips provide a deeper dive into the company's current position. With a market capitalization of $728.03 million and a negative price-to-earnings (P/E) ratio of -1.62, the airline's financial metrics reflect the challenges it faces. The adjusted P/E ratio for the last twelve months as of Q4 2023 further emphasizes this, standing at -1.93.
On the operational front, Spirit Airlines reported a gross profit margin of 15.51% over the last twelve months, which is a critical indicator of the company's ability to manage costs relative to its revenues. Despite this, the airline has an operating income margin of -7.2%, signaling that it is currently not generating profit from its operations.
InvestingPro Tips highlight two significant concerns for investors. Firstly, Spirit Airlines operates with a significant debt burden, which could hinder its financial agility. Secondly, the company is quickly burning through cash, a situation that may impact its ability to sustain operations without additional financing. These factors are crucial for investors to consider, especially in light of the mixed shelf registration and the potential implications for equity dilution.
For investors seeking more comprehensive analysis, InvestingPro offers additional insights into Spirit Airlines' financial health and future prospects. There are currently 13 additional InvestingPro Tips available, which can be accessed with a subscription. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a more strategic perspective on investment decisions.
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