NEW YORK (TheStreet) -- Spirit Airlines (SAVE) - Get Report shares are down 6.8% to $59.18 on Wednesday after the budget airline company said that its third quarter operating margins would be in the lower half of its previous guidance.
The company had previously announced that it expected its third quarter operating margins to be in the 20.5% to 22% range.
The decreased outlook is a result of the company's underpayment of a federal excise tax on fuel purchases that it was recently made aware of.
The underpayment occurred between July 2009, when Spirit changed fuel service providers, to August 2014 when it became aware of the error.
As a result, the airline increased its outlook for fuel price per gallon costs to $3.13 per gallon from $3.09 in the second quarter.
TheStreet Ratings team rates SPIRIT AIRLINES INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate SPIRIT AIRLINES INC (SAVE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, solid stock price performance and notable return on equity. 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."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- SAVE's revenue growth trails the industry average of 45.8%. Since the same quarter one year prior, revenues rose by 22.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- SAVE's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, SAVE has a quick ratio of 1.51, which demonstrates the ability of the company to cover short-term liquidity needs.
- SPIRIT AIRLINES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SPIRIT AIRLINES INC increased its bottom line by earning $2.43 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($3.11 versus $2.43).
- Powered by its strong earnings growth of 51.72% and other important driving factors, this stock has surged by 87.78% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Airlines industry and the overall market on the basis of return on equity, SPIRIT AIRLINES INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: SAVE Ratings Report