Going Long on Spirit Airlines

Spirit Airlines (Nasdaq: SAVE)
Recommended Action: LONG
Current Price: $18.22 Target Price: $30.00
Source: Hedge Fund. Minneapolis, MN.

Quick Pitch: Spirit Airlines (Nasdaq: SAVE) is an ultra low cost airline with the lowest costs and best margins in the U.S. airline industry. The company provides extremely low priced flights to a combination of vacation destinations, secondary markets and between selected major cities. Despite cramped flights due to more seats per plane and endless complaints about service, Spirit’s flights are full and the airline is profitable. Think of them as something like the dollar store of airlines. Using 6.5 EV/EBITDAR, which is the valuation of direct peer Aligent, and my 2012/2013 EBITDAR estimates, I believe Spirit stock offers investors 32% and 58% upside, respectively, over the next two years driven by continued execution and plane deliveries that will increase the size of their fleet by 19% in 2012 and 16% in 2013.