Goldman Sachs bets a recent merger will drive sharp gains for this travel stock
Allegiant Travel will continue to be a winner now that it closed its acquisition of Sun Country Airlines, according to Goldman Sachs. The bank this week upgraded the airline to buy from neutral. Its price target of $125 implies upside of 30% from Wednesday’s close. Allegiant Airlines announced in January it would acquire Sun Country in a $1.5 billion cash and stock deal. In a press release , CEO Gregory Anderson said bringing the two budget-friendly airlines together will create a “more differentiated and durable airline”. Shares have already outperformed, rising 18.5% this year while the S & P 500 is up just around 10%. And Goldman Analyst Catherine O’Brien thinks the deal will provide more growth opportunities for the company. ALGT YTD line Allegiant Travel Company has grown 18.5% this year “The merger drives incremental, profitable growth opportunities into an improving industry competitive environment, with a unique fuel hedge, at an attractive valuation,” she said in a note to clients dated Tuesday. Allegiant and Sun Country will have a combined fleet of 195 aircraft. O’Brien broke down that the larger fleet will allow the two to use their aircrafts more efficiently, highlighting that Allegiant’s recent purchase of a Boeing 737 will allow Sun Country to utilize Allegiant’s aircraft for its flights, creating a larger network. Spirit’s closure also gives the newly Allegiant more pricing power, according to Goldman. “We believe that [Spirit] impacted pricing across the day in markets it served even if it only served that market 1x-daily as price-sensitive customers are more likely to be flexible on flight times,” O’Brien elaborated. And while jet fuel prices have been volatile due to the attacks in the Middle East, Allegiant has a unique hedge to counter the volatile jet fuel prices, the analyst added. Analysts are generally split on the stock. Of the 12 who cover it, six have a buy or strong buy rating, LSEG data shows. The remaining six assigned a hold equivalent rating.
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