Spirit Airlines (NYSE:SAVE) stock is flying high today, but you don’t need to get pulled into a bad trade. The often-discussed merger prospects might stir up some excitement about Spirit Airlines, but I am bearish on SAVE stock because the company’s financials are problematic, and an acquisition is far from assured.
Florida-headquartered Spirit Airlines is a well-known airline carrier that’s had some turbulence in 2023. Sure, this could be said about U.S. carriers generally, given the shortage of qualified pilots and high fuel costs this year.
On the other hand, Spirit Airlines has its own problems, and I believe that a single day of bullish share price action shouldn’t convince prudent investors to start buying. All in all, I’m not rooting for Spirit Airlines to fail, but the company’s issues will probably keep Spirit Airlines grounded for the foreseeable future.
Spirit Airlines Stock Soars, But Why?
SAVE stock flew 19% higher today, so does this mean Spirit Airlines’ problems are over, and it’s time to get a boarding pass for higher prices? Not necessarily, as the share-price rally is still part of a long-term downtrend.
I looked everywhere but didn’t find any confirmed bullish catalysts for Spirit Airlines in the past two days. Instead, I suspect that there’s a short squeeze in progress based on hope and speculation that a certain airline will rescue Spirit Airlines — but more on that topic in a moment.
For now, just consider that Spirit Airlines definitely needs a rescue mission. The company had to cancel some flights to inspect 25 airplanes, but that’s the least of Spirit Airlines’ problems now.
A bigger issue is Spirit Airlines’ financials. The company posted a steep adjusted net loss of $149.8 million or $1.37 per share in 2023’s third quarter versus adjusted net income (positive, not negative) of $0.03 per share in the year-earlier quarter. Meanwhile, Spirit Airlines’ Q3-2023 operating revenue declined by 6.3% year-over-year to roughly $1.259 billion.
Furthermore, Spirit Airlines President and CEO Ted Christie issued some spirit-destroying remarks in the company’s quarterly press release. First, Christie observed, “Softer demand for our product and discounted fares in our markets led to a disappointing outcome for the third quarter 2023.” The CEO also stated, “Unfortunately, we have not seen the anticipated return to a normal demand and pricing environment for the peak holiday periods.”
Spirit Airlines Investors: Don’t Fight the Government
It’s a basic principle I’ve followed for decades. Regardless of what you’re investing in, it’s a bad idea to bet on any company that’s embroiled in a battle against the government.
There may be exceptions to this principle, but those exceptions are few and far between. Certainly, SAVE stock isn’t an exception, as the U.S. Department of Justice (DoJ) is actively fighting against JetBlue Airways’ (NASDAQ:JBLU) proposed acquisition of Spirit Airlines.
Specifically, the DoJ is urging a federal judge to block that acquisition. Evidently, the DoJ is concerned about a business combination of JetBlue and Spirit causing an increase in airline fares for consumers and reducing choices on flight routes in the U.S.
JetBlue’s management might claim to “look forward” to defending the Spirit acquisition, but should investors look forward to fighting this battle along with Spirit Airlines? Legal battles against the government can be lengthy and costly.
Moreover, there’s no guarantee that the deal will be approved in the end. To quote Citigroup (NYSE:C) analyst Stephen Trent, Spirit Airlines “could be in a difficult spot if the merger falls through.” That’s a fair statement to make, given Spirit Airlines’ $1.36 billion equity market cap versus the company’s third-quarter 2023 net debt of $5.6 billion (as estimated by Citigroup analysts).
Is SAVE Stock a Buy, According to Analysts?
On TipRanks, SAVE stock comes in as a Hold based on four Holds and one Sell rating assigned by analysts in the past three months. The average Spirit Airlines stock price target is $13.20, implying 6.2% upside potential.
Conclusion: Should You Consider SAVE Stock?
Today’s price action in Spirit Airlines stock might be difficult to understand. There wasn’t any special catalyst today or yesterday. I’m just chalking it up to short-term traders speculating and hoping for some positive news to happen soon.
Yet, speculation and hope aren’t viable investment strategies for the long term. Spirit Airlines has subpar financials, and there’s no easy or guaranteed pathway to JetBlue’s proposed acquisition of the company. Therefore, I’m leaning bearish on SAVE stock and am not considering buying it in 2023 or early 2024.