Pullback May Be Buying Opportunity at Spirit Airlines, Analyst Says

P/>MIRAMAR, FLA. ( TheStreet) -- An analyst who worried recently about a decline in Spirit Airline's ( SAVE) share price now sees a buying opportunity.

Spirit shares lost 9% between Monday's close and Tuesday's close after the carrier disclosed that board Chairman Bill Franke and director John White, both partners in Indigo, an early Spirit investor, would sell 16.6% of the company and resign from the board. It was later disclosed that Indigo will purchase competitor Frontier Airlines.

Spirit stock, which began the week at $35.62, dipped as low as $31.91 on Tuesday. On Wednesday, it closed at $33.05.

Wolfe Research analyst Hunter Keay said he sees a buying opportunity. On Thursday, he upgraded the shares to outperform with a target price of $40, based on 15X his earnings estimate for full-year 2014.

"We've been waiting for a chance to get re-involved in this stock, and while the massive YTD run has been painful to watch from the sidelines we feel this pullback is one of a quickly diminishing number of buying opportunities," Keay wrote in a report issued Thursday morning.

"We believe that if this stock isn't materially higher over the next 2-3 years then it's probably because something has gone wrong at the industry or macroeconomic level," Keay said. "SAVE has room to grow and though the periodic operational hiccup could cause a sharp pullback, SAVE's low fares are a sustainable competitive advantage."

Keay said "Franke's business expertise and vision as chairman of SAVE will be missed. But the analyst noted that the sale of Indigo's stake in Spirit "eliminates what might be the last structural overhang on the stock, as all private equity investors are out." Another early investor, Oaktree, sold out in August 2012.

Two weeks ago, with Spirit shares up 91% for the year, Keay wrote that they seemed to have peaked.

"Spirit continues to execute well above peers, but sentiment is as bullish as it has ever been in our view," he wrote in a mid-July report. "We caution that Spirit has had slip-ups in the past, and the risk/reward of Spirit's current valuation makes it hard for us to justify an outperform rating at this point. We would become more interested on a pullback."

The pullback has come.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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