Allegiant Travel Company (NASDAQ:ALGT) and SkyWest (NASDAQ:SKYW) Inc shares both closed higher Thursday after earning upgrades from analysts at Deutsche Bank.
On Wednesday, analysts upped their rating for the companies to Buy from Hold in a note to clients discussing the airline industry. The firm increased Allegiant’s price target to $145 from $110 and SkyWest (NASDAQ:SKYW)’s to $46 from $19.
The improved outlook is “based on what we think will be a significant improvement in both companies' return on invested capital (ROIC) over the next 2-3 years,” the analysts wrote.
Shares of Allegiant rose 2% to $117.04, and SkyWest stock added 4.5% to $38.56.
“For 2022, both airlines produced a ROIC that was middle of the pack and margins that were only slightly better than average among our coverage universe of 13 US airlines. However, we think both carriers could meaningfully outperform the industry in ROIC improvement for 2023-2025.”
For Allegiant, the analysts pointed to the completion of its Sunseeker resort, which will help grow new and unique sources of revenue, plus the launch of an antitrust-immunized joint venture with a low-fare Mexican carrier and the induction of Boeing 737 MAX aircraft.
“Depending on how Allegiant decides to finance its new Boeing 737 MAX aircraft, that could provide a positive boost to the company’s ROIC, “ analysts noted.
For SkyWest, the key factors to watch are the stabilization of pilot hiring, training, and retention trends; normalization of pass-through costs such as labor expense); built-in growth via a materially under-utilized asset base; and potential new sources of revenue such as SkyWest Charter, among others.
“We are starting to see early benefits from some of the drivers listed above as the company is now flying more block hours than we had originally forecast,” the analysts wrote. “As such, we are narrowing our 2023 loss per share forecast from $2.75 to $2.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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