A pair of Wall Street analysts have come out with notes bullish on the planned merger of Spirit Airlines (SAVE -1.33%) and Frontier Group Holdings (ULCC 0.97%). Shares of Spirit are soaring as a result, up as much as 8% on Wednesday morning.
On Monday, Spirit and Frontier announced plans to combine in a deal valued at about $6.6 billion that would create the nation's fifth-largest airline. Frontier is technically the acquirer in this deal, with Spirit shareholders set to get a combination of Frontier cash and stock, assuming the deal closes as planned later this year.
Airline mergers can be tricky, and this deal is still subject to regulatory approval, but Wall Street by and large likes what it sees from the combination. On Wednesday morning, Deutsche Bank analyst Michael Linenberg raised his price target for Spirit shares to $38 from $30 and kept his buy rating. Linenberg said the transaction makes a lot of sense for both companies.
Separately, JP Morgan analyst Jamie Baker wrote the risk/reward on Spirit shares is "very attractive" right now, reiterating his $34 price target. The value Spirit shareholders will get will ultimately depend on where Frontier shares are trading, but with analysts expecting a busy summer flying season and discounters like Frontier and Spirit likely to be beneficiaries of that traffic surge, there is a lot to like about these stocks even without factoring in the added scale and efficiencies that the deal will bring.
There is good reason for Spirit shareholders to be optimistic right now. This was a well-run company prior to the pandemic, and when it's combined with Frontier, this should be one of the most attractive growth stories in transportation in the years to come. But we've seen over the past two years that airlines can sometimes get hit by factors beyond their control.
Should the deal close as planned, Spirit shareholders will be getting the best of both worlds: Some cash that can be redeployed right away plus Frontier stock that will allow shareholders to capitalize on the deal's upside. The stock is gaining altitude today based on that optimism.