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Why is Allegiant Stock Down More Than 8% Year to Date?

Zacks Equity Research
Updated

Allegiant Travel Company ALGT has faced multiple headwinds due to the recent hurricanes, Las Vegas mass shooting and escalating costs so far in 2017. Consequently, shares of the company have declined 8.5%, significantly underperforming the Zacks Airline industry’s rally of 15.1% on a year-to-date basis.

Lets have a deeper look into the headwinds.

The company's fourth-quarter guidance for total revenue per available seat miles (TRASM) is concerning. TRASM for the quarter is anticipated to decline between 0.5% and 3%. Hurricane Irma and the Las Vegas mass shooting are expected to hurt the metric.

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As the company has a significant exposure to Florida and Las Vegas, its bookings for the fourth quarter might be hurt, as well. Furthermore, Irma and the Las Vegas mass shooting are expected to have a negative impact on TRASM between 3 and 3.5 percentage points.

Additionally, the decline in the third-quarter load factor (percentage of seats filled by passengers) at the company remains concerning. The metric was down in October too as traffic growth was outpaced by capacity expansion. Moreover, high fuel costs are potent threats.

High labor costs are also hurting the bottom line. For example, in the third quarter cost per available seat miles (CASM), excluding fuel, increased 16.7% driven by the new pilot agreement, transition costs among other factors. For the fourth quarter, the company expects CASM (excluding fuel) to increase between 7% and 9%. The metric is anticipated to rise in the band of 11% to 12% for 2017.

Furthermore, Allegiant like its fellow airline operators such as United Continental Holdings UAL, Spirit Airlines SAVE and Southwest Airlines LUV has been hit hard by the back-to-back hurricanes this year. Its high debt levels also raise concerns.

Not a Broker Favorite

Allegiant’s earnings estimates reflect the pessimism surrounding the stock. The company has witnessed the Zacks Consensus Estimate for current-quarter earnings being revised 27.6% downward, in the last 60 days. Also, the current-year earnings estimates have moved down 7.6% in the same time frame.

Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Zacks Rank & Style Score

Taking into account the above-mentioned headwinds, we believe that investors should stay away from the stock right now. Allegiant’s Zacks Rank #5 (Strong Sell) also supports our view, indicating that the stock is likely to underperform the broader market over the next one to three months.

Furthermore, the company’s VGM Score of C highlights its unattractiveness. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Southwest Airlines Company (LUV) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
 
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Zacks Investment Research