In a report released today, Stephen Trent from Citi maintained a Hold rating on Frontier Group Holdings (ULCC – Research Report), with a price target of $8.00.
Stephen Trent has given his Hold rating due to a combination of factors pertaining to Frontier Group Holdings’ strategic financial maneuvers and market conditions. Trent acknowledges Frontier’s clarity in explaining its sale-leaseback strategy, which is a significant part of its fleet financing. Despite the legitimacy of including sale-leaseback gains in operational expenses, aligning with larger carriers’ practices and accounting rules, there are complexities involved in assessing the value of such gains. Trent notes that while Frontier has benefited from material gains through advantageous pre-pandemic aircraft orders, the valuation of these gains is not straightforward, especially in an inflationary environment where aircraft residual values may be in question.
Moreover, Trent considers the broader context of how airlines generate profit, pointing out that while Frontier has a valuable firm order book, there’s a nuanced discussion around the sustainability and consistency of profits derived from non-core activities like sale-leaseback and fuel hedging gains. This is contrasted with more traditional revenue streams such as ticket sales and ancillary fees. The report suggests that the uncertainty around the long-term valuation of sale-leaseback gains, combined with market factors that could impact aircraft values, contributes to the Neutral / High Risk rating with an expected share price return of just 0.3%.
In another report released on February 7, Bank of America Securities also reiterated a Hold rating on the stock with a $7.00 price target.
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Frontier Group Holdings (ULCC) Company Description:
Frontier Group Holdings Inc is an ultra-low-cost carrier. It offers flights throughout the United States and to select international destinations in Mexico and the Caribbean. The company’s business model is based on its unique Low Fares Done Right strategy. Frontier Group operates a fleet of over 60 narrow-body Airbus A320 family aircraft.
Read More on ULCC:
- Frontier Airlines to Participate in the Barclays Industrial Select Conference
- Frontier Group price target raised to $7 from $5 at Deutsche Bank
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- Frontier Group sees 2024 capacity up 12%-15% vs. 2023
