Spirit Airlines (NYSE:SAVE) shares are in freefall during Wednesday’s session, as bankruptcy appears imminent for the Florida-based airline following a Wall Street Journal report that merger talks between Spirit and Frontier Airlines have collapsed.
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The article mentions that Spirit is in advanced negotiations with its creditors regarding a bankruptcy plan, with a filing anticipated in the coming weeks.
Meanwhile, following the market close on Tuesday, Spirit announced it had filed a Form 12b-25 with the SEC, signaling a delay in submitting its 10-Q by the deadline. The company stated that if an agreement with creditors is reached, it will pursue a statutory restructuring, which would result in the cancellation of its equity. Spirit clarified, however, that this restructuring would not impact its secured aircraft creditors, general unsecured creditors, employees, customers, vendors, suppliers, or lessors.
The low-cost carrier also shared updated estimates for its third-quarter results, indicating an expected revenue decline of 4.8% year-over-year, with management suggesting an adjusted operating margin of approximately -26%.
The news has prompted a rethink on the stock from Cowen analyst Tom Fitzgerald, who has now lowered his estimates for FY25 and FY26 “on the assumption that the airline significantly shrinks in a restructuring.” Fitzgerald also thinks the news raises the risk that customers may choose to book with other airlines, the result of which will be “even greater pressure on liquidity.”
Should a restructuring take place, attention is likely to turn to the future of Spirit’s fleet. “We expect the airline to sell off the remaining encumbered assets to pay off the associated debt on the aircraft and work to reject leases on the rest of the fleet,” Fitzgerald opined.
Currently, the airline is in the midst of selling 23 aircraft to GA Telesis, leaving 190 aircraft in total, according to Cirium data. Of these, 28 aircraft are owned and encumbered, while 162 are leased.
Bottom line, Fitzgerald rates Spirit shares a Sell, while slashing his price target from $2 to $1, suggesting the stock is fully valued. (To watch Fitzgerald’s track record, click here)
Not many stocks on Wall Street are rated as Strong Sells, but SAVE is currently one of them, with the rating based on a mix of 4 Sells and 1 Hold. On one hand, the average price target currently stands at $2.13, indicating an upside of 60% from current levels. However, that is unlikely to stay the same once other analysts update their models. (See SAVE stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
