The carrier's fourth-quarter results, reported Tuesday, resulted in a 5% gain that day and pushed shares to their highest level since a difficult week in December when investors sold off after margin guidance was revised downward.
Spirit shares closed Wednesday at $79.24, down 81 cents. They dipped as low as $67.62 in December.
"The most powerful trend to me is strong top-line growth and strong profit improvement, along with cost benefit of lower fuel," said S&P Capital IQ analyst Jim Corridore in an interview. Corridore, who has a strong buy on the stock and a $100 price target, raised his 2015 earnings estimate to $4.88. Analysts surveyed by Thomson Reuters estimate $5.16.
During the week of Dec. 8, Spirit shares fell 19%, scaring investors who had learned to count on rapid share price growth from the innovative downscale airline. Over the past five years, shares have risen 572%.
The December decline was prompted by guidance included in Spirit's November traffic report, which slightly reduced the fourth-quarter operating margin forecast to between 18% and 19% due to two factors: "dilutive pricing" in Dallas because of Southwest (LUV) - Get Southwest Airlines Co. Report expansion at Love Field, and "compression in the fare structure for close-in bookings believed to be driven by the industry's willingness to trade lower fuel prices for lower fares."
Corridore said he wasn't concerned by the mounting competition nor by Spirit's 30% projected 2015 capacity growth in an industry where "capacity discipline" is a favored buzzword.
"If you look at what most large carrier capacity plans are, we're not seeing aggressive capacity moves, and Spirit is still a very small player relative to them," he said. In Dallas, he said, "you see yield degradation, but a little bit of yield degradation is OK. It's OK to give away a little bit of yield for profit growth." Yield is the average fare paid per mile.
For the fourth quarter, Spirit reported operating margin of 19.9%, 450 basis points higher than a year earlier. "The margin improvement was cost-driven as its jet fuel price/gal decreased 19.2% (excluding fuel, down 2.9%) offsetting a 5.1% decrease in unit revenue," wrote Deutsche Bank analyst Mike Linenberg. He raised his target price to $100, while CRT Capital analyst Mike Derchin raised his estimate to $105.
Jim Cramer, who interviewed CEO Ben Baldanza on Mad Money on Tuesday, called Spirit "the best-run company" in the airline group and said Baldanza is "my favorite airline executive.
"The pullback to 68 was an incredible buying opportunity," Cramer said.
Cowen & Co. analyst Helane Becker remains a doubter. She wrote Tuesday that "nearly 40% of Spirit's capacity will be in the development stage in 2015, resulting in declining unit revenues ... Generally speaking, new markets take time to spool up and unit revenues lag that of the system average."
Moreover, "Spirit has seen pricing pressures on off-peak days as airlines attempt to fill marginal capacity," Becker wrote. She reiterated a "market perform" rating and upped her target price by $2 to $81.
-- Written by Ted Reed in Charlotte, N.C.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.