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TSC Ratings' Updates: Allegiant

The following ratings changes were generated on Tuesday, Dec. 9.

We've upgraded Allegiant Travel (ALGT - Get Report) from hold to buy, driven by its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Revenue rose by 35.4% since the same quarter last year, outpacing the industry average of 7% growth, but earnings per share declined. Alegiant's current debt-to-equity ratio, 0.33, is low and is below the industry average, implying successful management of debt levels. The company also maintains an adequate quick ratio of 1.27, which illustrates the ability to avoid short-term cash problems. Net income has decreased by 30.3% since the same quarter a year ago, falling from $7.02 million to $4.89 million, outperforming the airlines industry average. EPS decline 29.4% in the most recent quarter compared with the same quarter a year ago. During the past fiscal year, Allegiant turned its bottom line around by earning $1.54 vs. -11 cents in the prior year. For the next year, the market is expecting a contraction of 9.1% in earnings to $1.40.

Shares are trading above where they were a year ago, outperforming the S&P 500 despite the company's weak earnings results. The stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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