Shares of Spirit Airlines rose in afternoon trading yesterday after a Citigroup analyst said a recent decline in the stock created an opportunity for investors.
Analyst Stephen Trent said that a recent slide in the value of the shares to a four-month low had created "a very attractive opportunity in the shares" and he reiterated his "Buy" rating.
Trent described Spirit Airlines’ business model as "a product that clearly works" and that the airline was benefitting from the weak economy as travellers looked for cheaper seats.
But he also lowered his target price for the shares to $27 from $30 due to his opinion that long-term earnings won't grow as fast previously predicted.
Strong traffic figures for May helped to bolster the stock valuation but the lack of large-scale fuel hedges means the airline is exposed to spikes in fuel prices. Spirit’s hedges covers only 19% of its second-quarter fuel needs, which is a problem when the airline expects non-fuel costs to rise about 12% in the second quarter compared with a year ago.