What happened

Spirit Airlines (SAVE 1.11%) shareholders have enjoyed a nice recovery in 2021 after a miserable 2020. But on Wednesday a Wall Street analyst said the stock has gotten ahead of the recovery, causing shares to fall 5%.

So what

Airlines were hit hard last year by the pandemic, with demand for travel all but evaporating, but the stocks have recovered in recent months on hopes that as vaccination becomes more widespread, demand for travel will return. Spirit has always seemed like a likely candidate to recover ahead of the pack thanks to its industry-low costs and network catering to the leisure travelers who are expected to come back first.

A Spirit plane coming in for a landing.

Image source: Spirit Airlines.

But Evercore ISI analyst Duane Pfennigwerth believes the optimism has been overstated, on Wednesday downgrading the stock to in line from outperform. Pfennigwerth notes that shares were up 52% year to date coming into Wednesday, and up more than 200% in the last 12 months.

Lost in the excitement is the substantial amount of stock and debt Spirit had to issue to raise funds to survive the pandemic. The company's share count is 43% higher than it was pre-pandemic, according to Pfennigwerth. He worries that as conditions normalize and "fundamental factors" are used to judge airlines, that bloat will work against Spirit shares.

Now what

Pfennigwerth has a $40 price target on Spirit shares, which is above the current trading price, indicating he is not hitting the panic button. I tend to agree with him on the relative valuation of airline stocks compared to before the pandemic, and I made a similar point back in March.

It's hard to feel confident that the near-term surge will continue, but I still believe Spirit is set up well to win the long-term battle. For those who can handle a bit of turbulence, Spirit continues to be an attractive investment, but momentum traders should heed Pfennigwerth's caution.