Allegiant Travel (NASDAQ: ALGT) didn't release third-quarter results in October, but the airline and resort operator was weighed down by the results and outlooks posted by its aviation rivals. Shares of Allegiant fell 13.3% for the month, according to data provided by S&P Global Market Intelligence, on growing investor fears that a slowdown is at hand.
Is the consumer spending surge over?
Allegiant is not your typical airline. The discounter avoids direct competition from larger airline rivals by focusing on connecting secondary markets.
It has also tried to diversify revenue by offering not just a way to get to your destination, but also things to do once you are there. Allegiant has previously invested in golf and family fun centers and is currently putting the finishing touches on its in-house developed Sunseeker Resort in Florida.
The business relies on the consumer economy, and investors have grown increasingly nervous that inflation and rising interest rates will eat into household spending and cause a slowdown in travel.
Allegiant's rivals did little to dispel those fears as they announced third-quarter results throughout October. Although the summer travel period was strong, several major airlines said they are cutting capacity and revisiting profitability projections due to slowing demand and higher fuel prices.
The gloomy mood around the sector caused at least one Wall Street bank to lower its price target on Allegiant mid-month to $75, from $122. And late in the month, Allegiant reported that total systemwide passengers fell by 0.4% in September from the year prior, despite the airline offering 4% more departures.
Is Allegiant a buy following its October swoon?
Allegiant finally reported third-quarter results on Nov. 2, and the numbers, though not a disaster, did little to calm investor fears.
The company earned $0.09 per share on revenue of $565.4 million compared to Wall Street expectations for a $0.08 per share profit on sales of $580.05 million. It also raised its full-year estimate for fuel expenses, and in doing so lowered its guidance for full-year airline earnings to a range of $7.75 to $8.50 per share, from a range of $10.50 to $13.
The good news is that the Sunseeker Resort, after numerous pandemic-related delays, is largely complete and expected to open on Dec. 15. CEO Maurice J. Gallagher Jr. said he is "thrilled to begin realizing the benefits" that the resort will provide. But the questions about the economy are unlikely to go away anytime soon.
The shares, like the airplanes the company flies, have had a lot of ups and downs over the years, but the stock today is below where it was a decade ago. Given the uncertainty about what lies ahead, and Allegiant's reliance on a strong consumer to generate growth, investors are right in being cautious about buying into the company today.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Allegiant Travel. The Motley Fool has a disclosure policy.
