JETS - Allegiant Travel: Burden Of Proof On The Bulls Shares Trying To Bottom

Summary

• Americans continue to spend on travel, but the leisure boom could be on the mend as excess savings dwindles.
• An embattled low-fare carrier continues to struggle, but EPS recovery is eventually expected.
• I see bullish signs on the chart, but uncertainty remains elevated with Allegiant.

Airlines just keep ascending. The US Global Jets ETF ( JETS ) surged to start the year, then some skeptics suggested the group had come too far, too fast, and that a pause in the rally was due. That pullback narrative has been taken off the table for now as this niche of the transports industry within the Industrials sector lifts to new 2023 highs, and the best price since Q2 of last year.

One firm is stuck on the tarmac, though. Is there a runway for Allegiant to rise? Climb aboard, and let’s weigh the risks.

Airlines Airing It Out in 2023 So Far

According to Bank of America Global Research, Allegiant Travel Company ( ALGT ) is a low-fare, low-utilization carrier with a unique business strategy, flying where others do not. ALGT primarily serves leisure travelers in small and medium-sized cities, flying 615 routes to 132 cities. ALGT actively manages capacity to match demand patterns by flying each route only a few times a week and uses older planes with low capital costs. An early unbundler, ALGT generates more fees per passenger than any U.S. airline. ALGT's largest markets are Orlando, Las Vegas, and Tampa.

The Las Vegas-based $1.5 billion market cap Airlines industry company has negative trailing 12-month GAAP earnings and does not pay a dividend, according to The Wall Street Journal .

The company was recently downgraded by Susquehanna due to operational challenges, along with Southwest Airlines. That came after the notorious FAA snafu earlier this month. Still, the firm reported decent traffic data in its December update for November interim figures.

On valuation , analysts at BofA see earnings having fallen massively in 2022, but significant operating leverage should help EPS turn steeply into the black this year with more growth expected in 2024. Using the forward numbers, ALGT trades at low teens operating and GAAP earnings multiples and trades at a very low EV/EBITDA ratio. Unfortunately, free cash flow is in the red.

The company’s leisure business model worked in the months after reopening, but some bearish news recently about the 737 MAX might increase costs, keeping the valuation low. I want to see more evidence of a fundamental turnaround before getting aggressively long on valuation.

Allegiant Travel: Earnings, Valuation, Free Cash Flow Forecasts

Looking ahead, corporate event data from Wall Street Horizon show a confirmed Q4 2022 earnings date of Wednesday, February 1, after the close with a conference call immediately after results cross the wires. You can listen live here . Then on February 20, more volatility could come about from the firm’s January service level traffic interim data.

Corporate Event Risk Calendar

The Technical Take

ALGT has taken it on the chin in the last several quarters. Shares fell more than 75% from their early 2021 high above $270 when re-opening optimism peaked. Constant waves of selling ultimately led to a low just above $60 late last year. But notice in the chart below that shares put in a bullish double-bottom reversal pattern.

The stock is now hovering near resistance in the mid-$80s. If it indeed breaks out, then a measured move price target to near $110 would be in play – the mid-2022 range lows. But there are several resistance zones above that to cap gains. Also, the falling 200-day moving average proves that the long-term trend remains down.

While there is a tradable low here, I would go with other better-performing airline stocks rather than speculate on ALGT.

ALGT: Bullish Double Bottom, But A Pronounced Downtrend Remains

The Bottom Line

ALGT is one to watch this year. It has a lot to prove both on its profitability front and technically. I am a hold for now due to the possibility that it’s a good value pick and there is a positive reversal feature on the chart, but it’s also high risk.

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