In a previous article, I predicted “higher altitudes” for Spirit Airlines Incorporated (NASDAQ:SAVE) stock. If earnings reports serve as an indicator, the equity should, indeed, fly higher. In the fourth quarter of 2017, the company beat estimates on both earnings per share (EPS) and revenue. Now, as the stock market corrects from recent all-time highs, Spirit stock is poised to serve investors well once the dust settles.
Spirit Stock Beat Earnings and Revenue Estimates
In the Q4 2017, the company earned 73 cents per share. Revenues came in at $667 million, beating estimates and giving the company a 15.3% increase in year-over-year revenues. Analysts had predicted 71 cents EPS on $665.36 million in revenue. While earnings beat estimates, EPS still came in lower than the 77 cents per share the company earned in Q4 2016.
For all of 2017, company EPS came in at $3.33 per share, just ahead of the $3.30 per share consensus estimates. Amid hurricane delays and rising costs, profits fell from the $4.13 per share the company earned in 2016. Still, Spirit reported $2.65 billion in revenue for 2017, which met analyst expectations. It also showed an increase of 14% from the 2016 revenue figure of $2.32 billion.
Although passengers often complain about the nickel-and-diming that comes with flying Spirit, the low fares have proven themselves a winner for passengers and Spirit stock investors alike. Revenue has risen by an average of 16.7% per year over the last five years. Net income rose by an average 28.2% in the same period. With the airline adding planes, destinations and passengers consistently, the pace of growth continues unabated.
Spirit Stock Will Soar Despite Hurricanes and Labor Disputes
Also, SAVE enjoyed a prosperous 2017. The company added six destinations and increased the size of its fleet by 17 aircraft. These additions gave the company the newest air fleet of any major U.S. airline. And despite a busy hurricane season, the carrier enjoyed a record on-time performance. Profits also allowed for the return of $45 million to shareholders through buybacks.
Still, its successes did not protect the company from all issues related to cost-cutting. Like Ryanair Holdings plc (ADR) (NASDAQ:RYAAY), its ultra-low-fare peer across the Atlantic, the low-cost strategy has led to labor disputes, particularly with pilots. Last summer, the airline had to cancel as many as 60 flights per day when pilots refused to work overtime. The cancellations ended when a judge ordered pilots to work their full schedules pending negotiations. Earlier this week, Spirit came to an agreement with its pilots. They will vote on that contract in the coming weeks.
Also, despite its successes, SAVE’s price-to-earnings (PE) ratios remain favorable. Spirit stock trades at a PE ratio of about 11 times 2017 earnings. This brings Spirit’s PE ratio below the industry average of around 12. That industry average includes dynamic competitors such as Southwest Airlines Co (NYSE:LUV) and JetBlue Airways Corporation (NASDAQ:JBLU). It also includes legacy carriers such as American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL). SAVE’s PE ratio also remains low compared to the 26 PE ratio it reached in 2014. With its continuing high growth, the stock could reach that level again.
Bottom Line on Spirit Stock
Amid better than expected earnings, Spirit stock remains a buy despite an erratic stock market. Even with recent volatility, SAVE beat earnings and revenue estimates for the fourth quarter of 2017.
Despite complaints that come with lower levels of service, the company enjoys record profits and serves more cities and people, as expansion continues.
Also, the issue of pilot salaries, which plagued the company during 2017, looks to be resolved via a recent agreement. With a lower than average PE ratio and its growth on pace to continue, investment returns can continue soaring higher with a position in Spirit stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.