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Here's Why Investors Should Retain Allegiant Stock for Now
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Allegiant Travel Company (ALGT - Free Report) is bolstered by an improved demand scenario. The company’s efforts to expand are also encouraging. However, ALGT is grappling with weak liquidity and escalated expenses.
Factors Favoring ALGT
Robust air travel demand is boosting ALGT’s prospects. This is evident in the company’s recent traffic report. Scheduled traffic (measured in revenue passenger miles) rose 4.7% from the February 2024 levels. Capacity (measured in available seat miles) for scheduled service jumped 10.7% year over year. Despite this growth in traffic, capacity expanded even more significantly by 10.7%, which led to a slight decline in the load factor (the percentage of seats filled by passengers) to 79.5%, down from 84% the previous year.
Allegiant Travel's significant expansion of 44 new nonstop routes is a strategic move to cater to the growing demand for affordable and convenient air travel, including three new cities, of which 39 had no prior nonstop service. By adding new cities like Gulf Shores, Colorado Springs and Columbia and introducing new airports to its network, Allegiant is positioning itself to serve popular vacation destinations and underserved markets.
Moreover, in 2025, ALGT will drive capacity growth through increased aircraft utilization, particularly during peak leisure demand periods. The company plans to take delivery of 9 new MAX aircraft throughout the year, each offering significantly higher earnings potential compared to the older A320 aircraft they will replace. Additionally, ALGT continues to expand its premium seating offering, with 56 aircraft currently equipped with Allegiant Extra, boosting ancillary revenue per passenger.
ALGT: Key Risks to Watch
Allegiant’s financial stability is challenged by elevated operating expenses and weak liquidity. In 2024, the company’s operating costs surged 17% year over year. This rise was primarily driven by labor costs.
At the end of 2024, labor costs comprising salaries and benefits, accounting for 29.8% of the total operating expenses, rose 19.2% year over year.
Moreover, the company exited 2024 with a current ratio (a measure of liquidity) of 0.74. A current ratio of greater than 1 is always desirable as it indicates that the company has sufficient cash to meet its short-term obligations.
Owing to such headwinds, ALGT shares have declined 22.9% in the past year compared to the Zacks Transportation - Airlineindustry’s rise of 12.9% in the same period.
SKYW has an expected earnings growth rate of 16% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 16.7%. Shares of SKYW have risen 6% over the past six months.
Frontier Group sports a Zacks Rank of 1 at present. ULCC has an expected earnings growth rate of more than 300% for the current year.
The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. The average surprise is 1.1%. Shares of ULCC have rallied 36.2% in the past six months.
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Here's Why Investors Should Retain Allegiant Stock for Now
Allegiant Travel Company (ALGT - Free Report) is bolstered by an improved demand scenario. The company’s efforts to expand are also encouraging. However, ALGT is grappling with weak liquidity and escalated expenses.
Factors Favoring ALGT
Robust air travel demand is boosting ALGT’s prospects. This is evident in the company’s recent traffic report. Scheduled traffic (measured in revenue passenger miles) rose 4.7% from the February 2024 levels. Capacity (measured in available seat miles) for scheduled service jumped 10.7% year over year. Despite this growth in traffic, capacity expanded even more significantly by 10.7%, which led to a slight decline in the load factor (the percentage of seats filled by passengers) to 79.5%, down from 84% the previous year.
Allegiant Travel's significant expansion of 44 new nonstop routes is a strategic move to cater to the growing demand for affordable and convenient air travel, including three new cities, of which 39 had no prior nonstop service. By adding new cities like Gulf Shores, Colorado Springs and Columbia and introducing new airports to its network, Allegiant is positioning itself to serve popular vacation destinations and underserved markets.
Moreover, in 2025, ALGT will drive capacity growth through increased aircraft utilization, particularly during peak leisure demand periods. The company plans to take delivery of 9 new MAX aircraft throughout the year, each offering significantly higher earnings potential compared to the older A320 aircraft they will replace. Additionally, ALGT continues to expand its premium seating offering, with 56 aircraft currently equipped with Allegiant Extra, boosting ancillary revenue per passenger.
ALGT: Key Risks to Watch
Allegiant’s financial stability is challenged by elevated operating expenses and weak liquidity. In 2024, the company’s operating costs surged 17% year over year. This rise was primarily driven by labor costs.
At the end of 2024, labor costs comprising salaries and benefits, accounting for 29.8% of the total operating expenses, rose 19.2% year over year.
Moreover, the company exited 2024 with a current ratio (a measure of liquidity) of 0.74. A current ratio of greater than 1 is always desirable as it indicates that the company has sufficient cash to meet its short-term obligations.
Owing to such headwinds, ALGT shares have declined 22.9% in the past year compared to the Zacks Transportation - Airlineindustry’s rise of 12.9% in the same period.
Image Source: Zacks Investment Research
ALGT’s Zacks Rank
ALGT currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the Transportationsector may consider SkyWest (SKYW - Free Report) and Frontier Group (ULCC - Free Report) .
SkyWest currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SKYW has an expected earnings growth rate of 16% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 16.7%. Shares of SKYW have risen 6% over the past six months.
Frontier Group sports a Zacks Rank of 1 at present. ULCC has an expected earnings growth rate of more than 300% for the current year.
The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. The average surprise is 1.1%. Shares of ULCC have rallied 36.2% in the past six months.