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Spirit’s November Traffic Fueled By Busy Thanksgiving Holiday Travel

Spirit Airlines’ (SAVE) growth continues to outpace competing airlines and with a 7% PE ratio discount compared to the industry average, the company has room to grow from a revenue and stock appreciation standpoint. This was evident again when the company, along with the other major airlines, recently reported November 2017 traffic results. While most major airlines experienced respectable growth due to busy Thanksgiving holiday travel, its very important to see Spirit continuing to post consistent growth with previous months. Spirit surpassed November 2016 growth of 15.5% and 16.4% for revenue passenger miles (RPMs) and available seat miles (ASMs) year over year.

Holiday traffic is more important as travelers value reliability when it comes to the holidays and this is an area Spirit has struggled in the past. I will discuss this is more detail, but November 2017 traffic data come in as follows:

Revenue passenger miles (RPMs) measures the traffic for an airline and is calculated by multiplying the number of revenue-paying passengers for the month by the total distance of flights for the month. Spirit Airlines RPMs increased 17.3% year over year to over 2.08 billion. Spirit wasnt the only airline to see increased traffic during November. In comparison to other airlines, United (NYSE:UAL) by far led the way with a 5.1% increase. Behind Uniteds stellar month was Delta Air Lines (NYSE:DAL) at 3.5% increase, Southwest (NYSE:LUV) with increases of 3.4%, and JetBlue (NASDAQ:JBLU) right behind with an increase of 3%.

Average seat miles (ASMs) measures the airlines’ flight carrying capacity and is calculated by multiplying the number of seats available for passengers during the month by the total distance of flights for the month. Spirit Airlines’ ASMs increased 17.1% year over year to over 2.55 billion. This was a much greater increase compared to other airlines with Uniteds 5.1% increase being the next largest jump at over 3 times less. JetBlue and Delta followed behind with increases of 4.3% and 2.9%, respectively. Lastly, Southwest fell well behind competitors with an increase of only 2.5%.

Based on these results for the month of November 2017, Spirit Airlines continues to show impressive growth in comparison to the other airlines. It shows that their unique and market disrupting business model is still effective with RPMs and ADMs metrics both in the high teens and well above competitors. The 17.3% gain in RPMs was more than 3 times the next largest growth posted in the industry by United. With RPMs and ASMs of only 2.08 billion and 2.55 billion, both of which are significantly below the other major airlines, there is a lot of growth to be achieved by the low-cost airline.

While Spirit has seen extraordinary growth throughout much of the year, its encouraging to see such strong traffic in November. AAA was projecting a 3.3% year-over-year increase of Americans traveling 50 or more miles over Thanksgiving to a total of nearly 51 million individuals. These projections ranked as the busiest Thanksgiving travel since 2005. Within that, there are certain economic trends that skew that travel toward airlines. Airlines received the largest growth of Thanksgiving travelers with a 5% increase largely due to the highest Thanksgiving gas prices since 2014. Given Spirits issue with reliability, I was encouraged to see them get such a large percentage of this volume growth. Generally, I would expect travelers to be willing to pay a higher ticket for a higher probability of reaching their destination, but Spirit has put a large effort into fixing this negative image. In early December, the company announced a second straight month of record-breaking on-time success rate with 90.4% of all network flights arriving on-time in the month of November. This has culminated into a 4% system-wide on-time performance improvement through the first 11 months of 2017.

Improving this metric and ultimately the companys public image is a key initiative for Spirit and it becomes all the more important around the holidays. Spirit must keep this going in December and the Christmas holiday when AAA expects a record-breaking 107 million Americans to travel for the holiday. 6.4 million of them will travel by air, which is a 4.1% increase from the prior year. Im encouraged that Spirit will see a large portion of this increase largely due to their ability to increase their on-time success rate and their success in taking advantage of Thanksgiving holiday travel. A strong December will get the company off to a positive start for 2018 where I expect this positive momentum to continue.

While there are certain factors that could impact this trend, a lot of uncertainties are more likely to impact international travel versus domestic travel where Spirit Airlines concentrates. Additionally, the ongoing open contract negotiations with their pilots must be closely monitored. The pilots are represented by the Air Line Pilots Association and the two parties have been in an over 2-year bitter contract negotiation. Data shows that Spirit pays their pilots about half of what the other large airlines are paying their pilots due to their low-cost business model. As was seen earlier in the year, the pilots have the ability to impact flights and cause pain to shareholders–this situation should be closely monitored, but given the federal court order win in May, Im hopeful that the worst is behind Spirit.

In order to take full advantage of this increase in passengers, Spirit must continue to offer cheaper fares while managing customer service issues and the associated bad publicity. With their unique business model, Spirit Airlines is able to offer fares, on average, 40% cheaper than other airlines, according to the Department of Transportation (DOT) in a recent study. Even after adding additional items, such as seat assignments, bags, and refreshments, the total fare is 35% lower according to the same DOT study. Because of the company’s unique business model, the company tends to not spend on investments such as large dollar advertising campaigns, multiple-class cabins, and other technologies such as satellites and wireless internet equipment. Concentrating on operational efficiency allows the company to offer the lowest possible fares while still achieving higher profit margins than any other U.S. airline.

From a financial statement perspective, the company last reported third-quarter 2017 results. The company translated increased traffic into more revenue at a growth rate of 10.6% to $687 million. Despite the revenue growth, costs continued to climb at a slightly higher rate of 20% to $583 million. The increase in costs was attributed to flight volume, passenger re-accommodation expense, and higher fuel rates. The higher re-accommodation expenses were largely due to hurricane season. Again, this is something all airlines are dealing with and it isnt changing customer sentiment. From a valuation standpoint, Spirit Airlines stock looks cheap at a PE ratio of 14.3 compared to an industry average of 15.3 meaning the stock has nearly 7% to grow until it reaches the industry average.

With any rapid growth plan, there are some risks investing in Spirit Airlines; however, I believe the potential reward outweighs the risk. The above-industry average November 2017 and Q3 results compared to the other major airlines shows that their unique business model is continuing to be successful with airline customers even during the busy and time-sensitive holiday travel season. Given this success and low valuation, I believe the company is in a great position to take advantage of the expected increase in airline passengers as a result of the improving US economy and lower fuel prices. I fully expect the rapid growth story to continue through the remainder of 2017 and into 2018.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SAVE over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Services, Air Services, OtherWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

Spirit’s November Traffic Fueled By Busy Thanksgiving Holiday Travel

Spirit Airlines’ (SAVE) growth continues to outpace competing airlines and with a 7% PE ratio discount compared to the industry average, the company has room to grow from a revenue and stock appreciation standpoint. This was evident again when the company, along with the other major airlines, recently reported November 2017 traffic results. While most major airlines experienced respectable growth due to busy Thanksgiving holiday travel, its very important to see Spirit continuing to post consistent growth with previous months. Spirit surpassed November 2016 growth of 15.5% and 16.4% for revenue passenger miles (RPMs) and available seat miles (ASMs) year over year.

Holiday traffic is more important as travelers value reliability when it comes to the holidays and this is an area Spirit has struggled in the past. I will discuss this is more detail, but November 2017 traffic data come in as follows:

Revenue passenger miles (RPMs) measures the traffic for an airline and is calculated by multiplying the number of revenue-paying passengers for the month by the total distance of flights for the month. Spirit Airlines RPMs increased 17.3% year over year to over 2.08 billion. Spirit wasnt the only airline to see increased traffic during November. In comparison to other airlines, United (NYSE:UAL) by far led the way with a 5.1% increase. Behind Uniteds stellar month was Delta Air Lines (NYSE:DAL) at 3.5% increase, Southwest (NYSE:LUV) with increases of 3.4%, and JetBlue (NASDAQ:JBLU) right behind with an increase of 3%.

Average seat miles (ASMs) measures the airlines’ flight carrying capacity and is calculated by multiplying the number of seats available for passengers during the month by the total distance of flights for the month. Spirit Airlines’ ASMs increased 17.1% year over year to over 2.55 billion. This was a much greater increase compared to other airlines with Uniteds 5.1% increase being the next largest jump at over 3 times less. JetBlue and Delta followed behind with increases of 4.3% and 2.9%, respectively. Lastly, Southwest fell well behind competitors with an increase of only 2.5%.

Based on these results for the month of November 2017, Spirit Airlines continues to show impressive growth in comparison to the other airlines. It shows that their unique and market disrupting business model is still effective with RPMs and ADMs metrics both in the high teens and well above competitors. The 17.3% gain in RPMs was more than 3 times the next largest growth posted in the industry by United. With RPMs and ASMs of only 2.08 billion and 2.55 billion, both of which are significantly below the other major airlines, there is a lot of growth to be achieved by the low-cost airline.

While Spirit has seen extraordinary growth throughout much of the year, its encouraging to see such strong traffic in November. AAA was projecting a 3.3% year-over-year increase of Americans traveling 50 or more miles over Thanksgiving to a total of nearly 51 million individuals. These projections ranked as the busiest Thanksgiving travel since 2005. Within that, there are certain economic trends that skew that travel toward airlines. Airlines received the largest growth of Thanksgiving travelers with a 5% increase largely due to the highest Thanksgiving gas prices since 2014. Given Spirits issue with reliability, I was encouraged to see them get such a large percentage of this volume growth. Generally, I would expect travelers to be willing to pay a higher ticket for a higher probability of reaching their destination, but Spirit has put a large effort into fixing this negative image. In early December, the company announced a second straight month of record-breaking on-time success rate with 90.4% of all network flights arriving on-time in the month of November. This has culminated into a 4% system-wide on-time performance improvement through the first 11 months of 2017.

Improving this metric and ultimately the companys public image is a key initiative for Spirit and it becomes all the more important around the holidays. Spirit must keep this going in December and the Christmas holiday when AAA expects a record-breaking 107 million Americans to travel for the holiday. 6.4 million of them will travel by air, which is a 4.1% increase from the prior year. Im encouraged that Spirit will see a large portion of this increase largely due to their ability to increase their on-time success rate and their success in taking advantage of Thanksgiving holiday travel. A strong December will get the company off to a positive start for 2018 where I expect this positive momentum to continue.

While there are certain factors that could impact this trend, a lot of uncertainties are more likely to impact international travel versus domestic travel where Spirit Airlines concentrates. Additionally, the ongoing open contract negotiations with their pilots must be closely monitored. The pilots are represented by the Air Line Pilots Association and the two parties have been in an over 2-year bitter contract negotiation. Data shows that Spirit pays their pilots about half of what the other large airlines are paying their pilots due to their low-cost business model. As was seen earlier in the year, the pilots have the ability to impact flights and cause pain to shareholders–this situation should be closely monitored, but given the federal court order win in May, Im hopeful that the worst is behind Spirit.

In order to take full advantage of this increase in passengers, Spirit must continue to offer cheaper fares while managing customer service issues and the associated bad publicity. With their unique business model, Spirit Airlines is able to offer fares, on average, 40% cheaper than other airlines, according to the Department of Transportation (DOT) in a recent study. Even after adding additional items, such as seat assignments, bags, and refreshments, the total fare is 35% lower according to the same DOT study. Because of the company’s unique business model, the company tends to not spend on investments such as large dollar advertising campaigns, multiple-class cabins, and other technologies such as satellites and wireless internet equipment. Concentrating on operational efficiency allows the company to offer the lowest possible fares while still achieving higher profit margins than any other U.S. airline.

From a financial statement perspective, the company last reported third-quarter 2017 results. The company translated increased traffic into more revenue at a growth rate of 10.6% to $687 million. Despite the revenue growth, costs continued to climb at a slightly higher rate of 20% to $583 million. The increase in costs was attributed to flight volume, passenger re-accommodation expense, and higher fuel rates. The higher re-accommodation expenses were largely due to hurricane season. Again, this is something all airlines are dealing with and it isnt changing customer sentiment. From a valuation standpoint, Spirit Airlines stock looks cheap at a PE ratio of 14.3 compared to an industry average of 15.3 meaning the stock has nearly 7% to grow until it reaches the industry average.

With any rapid growth plan, there are some risks investing in Spirit Airlines; however, I believe the potential reward outweighs the risk. The above-industry average November 2017 and Q3 results compared to the other major airlines shows that their unique business model is continuing to be successful with airline customers even during the busy and time-sensitive holiday travel season. Given this success and low valuation, I believe the company is in a great position to take advantage of the expected increase in airline passengers as a result of the improving US economy and lower fuel prices. I fully expect the rapid growth story to continue through the remainder of 2017 and into 2018.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SAVE over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Services, Air Services, OtherWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

7 Strong Buy Stocks With 100% Wall Street Support

Which hot stocks are Wall Street analysts the most bullish on? The top stocks with no “hold” or “sell” ratings and a pure “strong buy” analyst consensus rating. Such strong buy stocks make for the most compelling investment opportunities — and I recommend keeping a close eye on them as we roll into 2018.

Using TipRanks’ powerful stock screener, I set out to pinpoint seven stocks that command the unanimous support of the Street. You can customize the screener filters to match your investment strategy.

In this instance, I searched for mega-, large- and medium-cap stocks with a “strong buy” consensus rating from analysts and best-performing analysts. These are the top analysts with the highest success rates and average returns.

From the results, you can immediately see a pie chart showing the spread of analyst ratings (buy, hold and sell) on each stock over the past three months. This makes it very easy to spot the best stocks with only “buy” ratings.

Now let’s dive in and explore the seven stock picks that all boast 100% Street support.

Strong Buy Stocks: Agios Pharma (AGIO)

This fast-growing healthcare stock is already up by over 48% year-to-date. And analysts are predicting big upside potential of close to 30% for the next 12 months. Indeed, in the last three months, Agios Pharmaceuticals, Inc. (NASDAQ:AGIO) has scored an impressive seven back-to-back analyst “buy” ratings. Let’s take a closer look at just why analysts are so bullish on this stock.

Agios is focused on developing anti-cancer therapies. It is concerned with small-molecule anti-cancer therapeutics that target cancer cell metabolism via the growth factor pathway. The company recently had its first drug approved by the FDA, and now Oppenheimer’s Leah R Cann says “We anticipate that Agios will launch additional novel products in the next few years.” He has a “buy” rating and $83 price target on the stock (34% upside potential).

In fact, Cann estimates that Agios’ revenue will grow substantially over the next five years, reaching $1.47 billion in 2021. In the third quarter, Agios easily beat his expectations with higher revenue, interest income and far lower operating expenses than anticipated. Revenue, for example, came in at $10.6 million instead of the estimated $9.1 million.

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Strong Buy Stocks: Alibaba (BABA)

Chinese e-commerce king Alibaba Group Holding Limited (NYSE:BABA) is one of the Street’s hottest stocks. In the last three months, no less than 19 analysts have published “buy” ratings on BABA. Meanwhile, the average analyst price target of $211 suggests BABA can still grow by 13.5% over the next 12 months.

Earlier this week, on China’s Single’s Day, BABA recorded a jaw-dropping sales performance. In a single day, the company’s sales hit $25 billion, up 40% from last year. And to fulfill these orders, Alibaba processed 1.48 billion transactions in 24 hours. This huge shopping festival, held on Nov. 11, is like the Chinese equivalent of Black Friday but about four times bigger.

Top RBC Capital Mark Mahaney reiterated his “buy” rating on BABA on Nov. 2. His “buy” rating came with a $220 price target, which suggests upside of 18% from the current share price. BABA is perfectly positioned to capitalize on fast-growing markets like China and the internet says Mahaney. He lists three key reasons why he is such a fan of the stock:

“Our basic thesis on BABA is threefold- 1). BABA is a great play on the dramatic secular growth that is China (China per capita GDP growth faster than U.S. and still 1/7th the size); 2) BABA is a great play on the dramatic secular growth that is the Internet; & 3) Management’s long-term focus and excellent execution arguably makes BABA the single best play on points 1 & 2.”

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Strong Buy Stocks: Delta Airlines (DAL)

One of the U.S.’s largest airline companies, Delta Air Lines, Inc. (NYSE:DAL) is a top analyst favorite right now. In the last three months, analysts have recorded a unanimously bullish outlook on the stock with six straight “buy” ratings. These analysts have a price target on DAL of $66.50 — suggesting upside of 36% from the current share price.

“We reiterate our Outperform rating on DAL due to attractive valuation, anticipated continued unit revenue recovery, and the strong balance sheet” writes top Raymond James analyst Savanthi Syth.

She reiterated her “buy” rating on the stock last month without a price target. DAL’s third-quarter earnings revealed better-than-expected revenue and EPS. These came with upbeat predictions for the current quarter’s average passenger revenue metric- a key measurement of success for airlines.

Delta is benefiting from low fuel costs, pricing power and improving international results. According to Bloomberg sources, Delta is now about to order 100 single-aisle jets worth up to $12.7 billion from either Boeing or Airbus Bloomberg.

Meanwhile, the company is also looking to hire more than 1,000 flight attendants in 2018.

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Strong Buy Stocks: Broadcom (AVGO)

Semiconductor giant Broadcom Limited (NASDAQ:AVGO) has only received “buy” ratings for the last 10 months. Indeed, in the last three months alone 23 analysts have published AVGO buy ratings- making this one of the Street’s undisputed favorite stocks. Plus, with an average analyst price target of $298 vs the current share price of $265, it seems like AVGO still has plenty of room for its stellar expansion to continue.

Indeed, several top analysts are even more bullish on the stock’s potential. Only six days ago, top SunTrust Robinson analyst William Stein raised his price target on Broadcom to $325 from just $281 previously. His new price target, the stock’s highest yet, translates into 22.6% upside from the current share price.

Stein says he likes the way AVGO CEO Howard Tan uses M&A to generate earnings growth. A prime example is AVGO’s recent $70 per share offer for smartphone chip supplier Qualcomm, Inc. (NASDAQ:QCOM).

Although the unsolicited bid has now been rejected by QCOM, it could still succeed as a hostile bid or AVGO could bounce back with a higher offer. Either way, if the $100 billion-plus deal goes through it would be one of the biggest tech deals ever.

Note that this five-star analyst has a very strong track record with his AVGO recommendations. Across his 13 ratings on the stock, he has a 92% success rate and 28% average return.

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Strong Buy Stocks: Fleetcor Technologies (FLT)

FleetCor Technologies, Inc. (NYSE:FLT) provides fuel cards and workforce payment products and services. Their customers include businesses, commercial fleets, oil companies, petroleum marketers and government in America, Europe and Brazil.

“FleetCor provides a healthy blend of organic and acquired revenue/profitability growth” advises top Oppenheimer analyst Glenn Greene. Indeed, in the last three months, shares have exploded from about $140 to the current share price of $180.

Taking this into account, it is not surprising that in this time the stock has received seven analyst “buy” ratings. And with an average price target of $197, analysts are predicting further upside of just over 9% for this stock.

On Nov. 1 Greene called results for the third quarter “solid” and significantly amped up his price target to $194 from $185. He writes “with shares trading at 17x our revised FY18E, macro factors now modestly favorable, and line-of-sight toward normalized mid-teens organic (perhaps 15-20% overall) EPS growth, shares appear attractively valued.”

Bear in mind that Greene seems to know what he is talking about: he is ranked #6 out of over 4,700 analysts tracked by TipRanks.

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Strong Buy Stocks: Cognizant (CTSH)

IT services firm Cognizant Technology Solutions Corp (NASDAQ:CTSH) certainly has the Street’s seal of approval. CTSH received a slew of “buy” ratings following its recent third-quarter earnings results. While the company reported results mostly in line with expectations, analysts cheered the company’s operating profit margin of almost 20%.

In fact, top William Blair analyst Anil Doradla was so encouraged by the results that he upgraded the stock from “hold” to “buy”. He sees multiple reasons to be bullish on CTSH including the similarity with highly-successful consultancy firm Accenture Plc (NYSE:ACN):

“Given the multiple disparity between Accenture and Cognizant, we believe there is potential upside to Cognizant’s multiple as investors increasingly associate Accenture as Cognizant’s closest peer. As seen in the exhibit below, Cognizant’s operating model has become similar to Accenture’s given its new focus on the shift to digital, margin expansion, and capital returns.”

In fact, Doradla sees multiple positive tailwinds for the stock and concludes:

“Bottom line, despite of some of our concerns with Cognizant’s core business, we believe the stock will outperform over the next 12 months given changing investor sentiment, the business model transition to a capital return story, and less severe sector headwinds than previously expected.”

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Strong Buy Stocks: Applied Materials (AMAT)

Last but not least, we have Applied Materials, Inc. (NASDAQ:AMAT), a “strong buy” stock with plenty of potential. The company specializes in the equipment, services and software needed to make semiconductor chips. Over the last three months, 12 analysts have recorded a bullish sentiment on the stock.

One of these analysts is B. Riley’s Craig Ellis. He reiterated his “buy” rating on Nov. 13 with a $63 price target (11.5% upside potential). Even though expectations for AMAT are already relatively high, Ellis says there are “numerous reasons shares could continue to perform well in the next 12 months.”

For example, Ellis believes the Street under-models a potentially significant China spending ramp beginning in 2018. He also believes that with increasing conviction of F20’s target EPS of $5.08, sentiment and value will rise.

“Valuation remains inexpensive and in our view at 15.0x and 13.9x our F18/19 EPS and just 11.1x F20’s target. In sum, we believe shares under-appreciate attractive long-term growth potential and believe shares remain attractive for larger cap GARP investors” summarizes this top 25 analyst.

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Which stocks are the top 25 analysts recommending right now? Find out here.

TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,500 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforemen