UBS initiates Allegiant Travel with sell, sets $58 stock price target By

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Tuesday, UBS initiated coverage on Allegiant Travel Company (NASDAQ:) with a Sell rating and a stock price target of $58.00. The firm expressed a positive outlook on the broader airline industry, anticipating a multi-quarter period of profit recovery later in the year, despite current uncertainties.

The analyst cited a slower recovery in revenue per available seat mile (RASM) as a concern for the near term but noted that risks have been mitigated following Allegiant’s stock decline of 17% last week. The expectation is for a sequential improvement in RASM, with low single-digit percentages in the second quarter and approaching mid-single-digit percentages by the fourth quarter.

This forecasted improvement is attributed to Allegiant’s network optimization strategy, which is expected to drive higher load factors and, consequently, better-than-expected profit margins in the second half of 2024 and into 2025.

The analysis suggests that the current stock price does not fully reflect the potential earnings, with the market pricing in an EBITDAR of $2.76 billion for 2025, which is below the UBS estimate of $3.64 billion.

The firm’s stance indicates that with the near-term risks now largely accounted for and the potential for profit growth in the latter half of the year, there is a favorable risk-reward scenario for the airline industry. UBS’s coverage of Allegiant Travel Company reflects a cautious approach amidst an anticipated sector-wide recovery.

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