It was a day when shares in every other U.S. airline fell. Shares of United (UAL - Get Report), at the center of the day's events after computer problems led to the cancellation of 1,150 flights, fell 3%, as did shares in American (AAL) and Southwest (LUV). Shares in Alaska (ALK), Delta (DAL), JetBlue (JBLU - Get Report) and Spirit (SAVE) all fell about 2%.
But Allegiant shares gained $7.52 to close at $190.44 after the carrier released a June traffic report that included improved guidance for passenger revenue per available seat mile (PRASM) and total revenue per available seat mile (TRASM). Allegiant shares are up 27% year to date. Only JetBlue, up 30% this year, has gained more.
In a note headlined "Gravity Defiance: Buy this Stock," Wolfe Research analyst Hunter Keay wrote that "Allegiant raised PRASM guidance again, when others continue to miss and industry PRASM trends continue to trend poorly."
Keay said Allegiant "is largely insulated from the problems that the industry is imposing upon itself via a lack of capacity discipline." He said "the bigger airlines get bigger in the biggest airports with bigger planes due to bloated cost structures (while) Allegiant cherry-picks the best leftovers with its variable cost model."
Allegiant said June PRASM fell in a range between 17.2% and 16.8%, while June TRASM fell between 7.4% and 7%. Meanwhile, cost per available seat mile excluding fuel fell between 1.3% and 0.9%, an improvement over prior guidance of flat to up 2%. Second-quarter TRASM is now expected to fall 7% and 7.4%, an improvement over prior guidance of a decline between 7% and 8%.
The revenue numbers "may appear soft," Keay wrote. But "who is raising PRASM guidance these days anyway?"
Cowen & Co. analyst Helane Becker raised her second-quarter earnings estimate to $3.11 a share, compared with the consensus estimate of $2.96, and moved her price target to $185 from $175. She noted that "2Q unit revenue, non-fuel unit costs and jet fuel were all better than expected."
"ALGT is a great fundamental story in the midst of overcoming the growing pains of work groups that have chosen to unionize," McKenzie wrote in a note. "We're unwilling to upgrade shares given persistent labor bluster that could result in revenue book-away and brand damage (which is difficult to analyze)
"Recent media reports continue to highlight operational issues, including flight cancellations in June to which the pilot union has drawn attention (exacerbating friction with management.)," he said. "Labor friction is the primary reason for our 14x multiple (vs. 15x or 16x we might otherwise apply absent labor friction)."