With Vaccines in Sight, Is it Time to Buy Spirit Airlines Stock?

The budget airline stock has taken a 33% hit so far in 2020

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Spirit Airlines, Inc. (NYSE:SAVE) is an American discount airline company. The company is also the eighth largest commercial airline in North America. Spirit Airlines flight destinations include the U.S., Latin America and the Caribbean. Like most travel stocks, Spirit stock has taken its fair share of a beating amidst the COVID-19 pandemic, the widespread travel restrictions, and stay-at-home orders. With the vaccine now on the horizon, let's take a deep dive into how much damage Spirit stock has taken during the pandemic, and how much upside Spirit Airlines stock potentially has.

Spirit Airlines stock has seen a whopping 33% decrease in 2020. At its 52-week low, Spirit stock reached a price of $7.01, but Spirit Airlines stock has recovered 278% since this bottom. Longer-term, Spirit stock reached its 52-week high of $47.49 early in the year.


While the next batch of Spirit earnings are too far into the future to consider in this analysis, it's important to take a look at how the company has performed against Wall Street expectations over the past 12 months. When a company tops expectations and the stock drops, this outcome suggests investor expectations were perhaps unreasonably high ahead of the earnings report release. Conversely, when a stock price increases in the face of weaker-than-expected results, it's likely because investors (and Wall Street) had their expectations set too low. While earnings reports are certainly more short-term catalysts for stock movement, knowledge of expectations and reality for the past year is critical to a complete fundamental analysis of a stock.

Spirit Airlines stock has beat expectations on half of its most recent quarterly earnings reports. In the fourth quarter of 2019, ahead of the COVID-19 crisis, Spirit stock beat expectations by $0.02, reporting an earnings per share (EPS) of $1.24. In the first quarter of 2020, Spirit Airlines stock reported an EPS that had turned negative. Spirit Airlines reported an EPS of -$0.86 missing expectations by a margin of $0.24. Spirit stock reported another huge decline in EPS for the second quarter of 2020. Spirit reported an axed EPS of -$3.59, missing expectations by an incredible margin of $0.93. In its most recent quarter, Spirit Airlines stock reported an EPS of -$2.32, beating expectation by $0.32. At this time, Wall Street is expecting Spirit stock to report an EPS of -1.40 for the fourth quarter of 2020

Starting off with Spirit Airlines' balance sheet, the company has definitely experienced a spike in debt that should be expected given the catastrophe that struck the travel sector this year. Spirit's total debt currently stands at $4.82 billion. On the flip side, however, the airline company is surprisingly in okay standing, with about $2 billion in cash and cash equivalents.

Not surprisingly, Spirit Airlines has taken heavy losses on its revenue in 2020. The company is pacing to end the year generating almost $2 billion less than it did in 2019. So far this year, Spirit has taken over $250 million in net losses. This is almost a $600 million difference from the $335 million in net profits the company achieved in 2019.

Spirit Airlines has endured the worst (and most uncertain) part of the pandemic and is now slowly climbing back to profitability. At this time, it is nearly impossible to reliably predict if Spirit Airlines revenue will return to pre-pandemic level any time soon.

However, Spirit Airlines stock should have plenty of room to grow over the next few years if SAVE can just bring its earning per share back up to even half of the $4.90 it reported in 2019. Plus, options traders are pricing in relatively low volatility expectations at the moment, per the security's Schaeffer's Volatility Index (SVI) of 77%, which sits in the 14th percentile of all other annual readings. 



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