Why Spirit Airlines Shares Dropped

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Spirit Airlines (Nasdaq: SAVE  ) fell as much as 17%, after the airline cut back guidance on revenue per available seat mile (RASM), a key metric in the industry, in its August traffic report.

So what: Spirit said that third quarter RASM would be down 2.5% to 4.5% for the third quarter, blaming the cut on the effects of Hurricane Isaac, as well as a federal excise tax holiday, which artificially inflated revenue in Q3 2011. Without these unusual items, CEO Ben Baldanza said, "RASM would have been up year-over-year."

The Wall Street brokerages didn’t seem to buy the explanation, as Raymond James downgraded the stock to "market perform," and Dahlman Rose cut its price target.

Now what: Despite this setback, Spirit is still growing strongly, with an increase of 19% in Revenue Passenger Miles in August, and 17% year to date. Analysts are also expecting a 28% jump in sales this year, and 19% next year, with an even fatter increase in earnings per share. I don’t see any long-term problems coming out of this release and, at a P/E of 11, this stock looks like a bargain right now. Dahlman Rose notably cut its price target to $23, indicating it still sees a healthy upside.

Looking for more info on Spirit Airlines? Just add it to your Watchlist by clicking right here.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2017744, ~/Articles/ArticleHandler.aspx, 10/22/2016 5:33:22 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 20 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
SAVE $47.51 Up +0.01 +0.02%
Spirit Airlines CAPS Rating: ****