Shares of Allegiant Travel Company (ALGT) have had a good time on the bourses of late, improving in double-digits over the past 90 days. The encouraging price performance resulted in ALGT outperforming its industryin the said time frame.

Three-Month Price Comparison

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Given the recent rally, the question that naturally arises is whether ALGT stock can sustain its bullish price performance or if investors should book profits now. Before that, let's delve deep to unearth the reasons behind this northward price movement.

Allegiant’s Bullish Q4 View on Upbeat Air-Travel Demand

Allegiantnow anticipates its fourth-quarter capacity (measured in available seat miles) for scheduled service to increase 1.8% on a year-over-year basis. This marks an improvement from the prior expectation of 1.5%.

Total system ASM is now projected to gain 1.9% on a year-over-year basis (prior view: up 1.5%). Operating margin is now expected to increase in the 13-14% range, which marks an improvement over the prior forecast of 6-8% band.

Earnings per share (EPS) (airline) is anticipated to be in the $2.50-$3.00 range (prior view: $0.50-$1.50).  Fourth-quarter consolidated EPS, excluding special items, is expected to be in the range of $1.75-$2.25. This marks an improvement from the prior expectation of breakeven to $1.00 per share. The Zacks Consensus Estimate is currently pegged at $1.06.

Apart from ALGT, Southwest Airlines Co. (LUV), American Airlines AAL and JetBlue Airways Corporation JBLU have also provided encouraging fourth-quarter 2024 guidance backed by upbeat holiday travel demand.

LUV now anticipates its fourth-quarter revenue per available seat mile (RASM or unit revenues) to increase in the range of 5.5%-7% on a year-over-year basis. This marks an improvement from the previous forecast of growth of 3.5% to 5.5%. The upside was owing to improving industry demand trends, and the company's revenue management techniques paid off.

AAL lifted its fourth-quarter 2024 adjusted EPS guidance owing to favorable pricing and revenue environment. JBLU anticipates its fourth-quarter revenues to decline in the range of 2%-5% on a year-over-year basis. This marks an improvement from the previous guidance of a 3%-7% decline. For 2024, total revenues are forecasted to tumble in the range of 3.5-4.5% (prior view: down 4-5%).

Other Tailwind Working in Favor of ALGT Stock

Apart from an uptick in air-travel demand, fleet additions represent another tailwind for ALGT. The company took delivery of two incremental 737-MAX aircraft in November. It anticipates ending 2024 with four MAX aircraft in service (compared with its prior expectation of one). With this, ALGT aims to expand its fleet size to 125 (prior view: 122) at 2024-end.

Considering the encouraging numbers related to 737 deliveries, ALGT executed to sell its underutilized CFM engines in the fourth quarter for $15 million. Given these positive numbers, ALGT anticipates fourth-quarter CASM, excluding fuel and special charges, to decline 3.5% year over year.

The fuel cost per gallon is suggested to be $2.50. For November 2024, average fuel cost per gallon – system was estimated at $2.52.

Given these tailwinds surrounding the stock, earnings estimates have been northbound for the fourth quarter and 2024 over the past 90 days, as shown below.

Impressive Valuation Picture for ALGT Stock

From a valuation perspective, ALGT is trading at a discount compared to the industry, going by its forward 12-month price-to-sales ratio. The reading is also below its median over the last five years. The company has a Value Score of A.

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Risks Weighing on Allegiant Stock

The northward movement in expenses on labor is hurting ALGT’s bottom line by pushing up operating costs. During the first nine months of 2024, total operating expenses rose 10.2% year over year. This was preceded by a 3.6% increase in 2023.

ALGT’s weak liquidity position is concerning. At the end of third-quarter 2024, the company’s total unrestricted cash and investments were $804.6 million, much lower than the long-term debt and finance lease obligations (net of current maturities and related costs) of $1.77 billion.

To Conclude

It is understood that ALGT stock is attractively valued, and upbeat air travel demand is contributing to its top line. However, investors should refrain from rushing to buy ALGT now due to the headwinds it faces.

Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report

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