Allegiant Travel's recent acquisition of Sun Country Airlines for $1.5 billion in cash and stock has prompted Goldman Sachs to upgrade its stock rating from neutral to buy, with a price target of $125. This upgrade reflects expectations of significant growth potential as the combined airlines will operate a fleet of 195 aircraft, allowing for more efficient use of resources.
Allegiant's CEO, Gregory Anderson, emphasized that the merger will create a 'more differentiated and durable airline.' The stock has already seen an 18.5% increase this year, outperforming the S&P 500's 10% rise.
Analyst Catherine O'Brien noted that the merger will provide incremental growth opportunities in a recovering industry, particularly as Allegiant has a unique fuel hedge to mitigate volatile jet fuel prices. Additionally, the closure of Spirit Airlines is expected to enhance Allegiant's pricing power, as it previously influenced pricing dynamics in the markets it served.
Despite the positive outlook from Goldman, analysts remain divided, with six out of twelve covering the stock rating it as a buy or strong buy, while the others maintain a hold rating