Spirit (SAVE) Up 100% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Spirit (SAVE). Shares have added about 100% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Spirit due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Spirit Airlines Incurs Loss in Q1

Spirit Airlines incurred loss of 86 cents per share (excluding 45 cents from non-recurring items) in first-quarter 2020, wider than the Zacks Consensus Estimate of a loss of 60 cents. In the year-ago quarter, the company reported earnings of 84 cents. First-quarter results reflect the impact of the coronavirus crisis on domestic and international air travel in March.

Operating revenues of $771.1 million missed the Zacks Consensus Estimate of $848.8 million and also declined 9.9% year over year. Passenger revenues, which contributed 97.7% to the top line, fell 10.1% year over year. Additionally, revenues from other sources dropped 1.1%.

Other Details on Q1

Total operating revenue per available seat mile (TRASM: a measure of unit revenues) plunged 18.8% in the reported quarter. The downside was caused by fall in load factor (% of seats filled by passengers) and yields due to the COVID-19 crisis. Notably, capacity expanded (11%) while traffic contracted (2.3%) in the quarter, leading to a 990-basis point decline in load factor (72.8% in the first quarter). Moreover, average yield declined 7.85 in the January-March period.

Adjusted operating expenses increased 8.2% to $829.07 million, mainly on increased flight volume and higher depreciation and amortization. Average fuel cost per gallon in the reported quarter fell 13.4% year over year to $1.81. Moreover, adjusted cost per available seat miles (CASM) dropped 2.4% in the reported quarter.

However, CASM, excluding operating special items and fuel (non-fuel unit costs), increased 3.3% year over year. Increased expenses on salaries, wages and benefits led to higher non-fuel unit costs.

Spirit ended the quarter with unrestricted cash, cash equivalents, and short-term investments of $894.4 million and an undrawn $110 million revolver.

Dealing With the Coronavirus Crisis

Due to an unprecedented drop in passenger demand in the wake of the coronavirus outbreak and to comply with government-imposed travel restrictions, the company reduced its April capacity by approximately 75%. The same has been reduced by approximately 95% for May and June.

With stringent cost-cutting measures, the airline has been able to reduce capital spending by approximately $50 millionfor 2020. Additionally, the carrier is in talks with Airbus to defer some of its aircraft deliveries for 2020 and 2021, which would help the airline lower aircraft-related capital expenses by approximately $185 million.

Besides savings from lower capacity, Spirit reduced non-fuel operating costs by $20-$30 million for 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -15.67% due to these changes.

VGM Scores

At this time, Spirit has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Spirit has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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