Spirit Airlines, Inc. Investors Get Another Nice Surprise

Spirit Airlines, Inc. was one of the best-performing stocks of 2013, and it looks to be in good shape for another strong year.

Jan 21, 2014 at 1:59PM

Spirit Airlines, (NASDAQ:SAVE) was the best-performing stock in a sector that zoomed higher during 2013. Through the first three quarters of 2013, Spirit grew earnings per share, or EPS, by a whopping 50% due to strong revenue growth and margin expansion. This, along with increasing investor optimism about its growth plans, helped Spirit Airlines stock soar more than 150% last year!

SAVE Chart

Spirit Airlines 2013 Stock Performance, data by YCharts

Despite some hiccups near the end of 2013, Spirit came into the new year with plenty of momentum. Based on an investor update that the company provided last week, Spirit Airlines investors can probably look forward to another strong performance in 2014.

Earnings estimates rising again
Back in October, Spirit Airlines management surprised investors by forecasting a significant jump in unit costs for Q4. One of Spirit's planes had an uncontained engine failure in mid-October, and the company budgeted $10 million in expenses related to that incident, mostly for aircraft repairs.


Spirit Airlines faced some one-time costs last quarter, due to an October engine failure

At the time, Spirit projected that these unforeseen expenses would drive a 4%-5% increase in adjusted CASM (a measure of unit costs) for Q4, well above the company's plan for declining unit costs. Based on this guidance, analysts cut their earnings estimates to reflect a year-over-year decline in Q4 profit, excluding the one-time effect of Hurricane Sandy from 2012.

Spirit's new investor update from last week paints a much nicer picture. The company reduced its estimate of the engine failure costs to $8 million. Moreover, Spirit Airlines found cost savings elsewhere, and it now projects Q4 adjusted CASM excluding fuel at $0.0598-$0.0603. In other words, adjusted non-fuel unit costs will rise just about 1% compared to last year's figure of $0.0593. That's about three percentage points lower than Spirit's original CASM ex-fuel estimate for Q4.

This result is extremely impressive considering the headwind caused by one-time costs related to the October engine failure. Combine that with a solid 3% increase in RASM (unit revenue), and Spirit should be able to manage some earnings growth this quarter after all!

Growth a little sooner
Spirit Airlines, shareholders also got good news on another front. While Spirit has been growing quickly and plans to continue growing over time, the company's 2014 fleet plan previously entailed a slowdown in growth. In fact, after taking nine new aircraft in 2013, Spirit had expected to receive only seven aircraft in 2014, before accelerating growth in 2015 with 18 deliveries.

However, last week Spirit revealed that it had been able to rework its delivery schedule with Airbus. Now the company plans to add 11 Airbus A320s this year, seven of which will arrive in the fourth quarter. There will still be a slowdown in growth, but it will be much less pronounced. Capacity is now expected to rise 17% in 2014, compared to a previous estimate of 15%.

For Spirit investors, it's great to see that the company is anxious to get additional planes sooner rather than later. While most of the 2014 deliveries are happening in Q4, this growth will still allow a significant bump in capacity during the busy Thanksgiving and Christmas travel seasons. Additionally, smoothing the growth rate will mitigate the operational risks and costs of adding lots of new routes at once.

Foolish conclusion
Spirit Airlines investors had a great year in 2013, and they've gotten off to a very nice start in 2014. The company has already demonstrated this year that its drive to reduce unit costs is still going strong, and that its explosive growth will continue in 2014. As the Spirit Airlines growth story plays out in the coming months and years, investors will continue to be rewarded nicely.

Protect your profits
Airline investors earned big profits in 2013 as the valuations of companies like Spirit Airlines soared. If you're one of those lucky investors sitting on big profits, now might be a good time to move some of your money into safer investments. Dividend stocks have historically outperformed the market, but they're much safer than airlines. The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need" can get you started as a dividend investor.  It's absolutely free, so simply click here now and get your copy today!

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information