Citi upgrades Allegiant to buy on merger synergies, sees airline earnings beats

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Citi Research expects nearly every airline to beat second-quarter consensus estimates and issue upbeat third-quarter guidance, citing modest capacity growth, fare increases, and lower fuel costs. Analyst John Godyn upgraded Allegiant Travel Company to buy with a high-risk qualifier and a $156 price target, representing 42% upside, reflecting the merger with Sun Country Airlines which he calls one of the best deals in the industry’s history. Godyn notes that updated merger models suggest Allegiant’s earnings power could exceed the highest current consensus estimates. He cautions that not all airlines will sustain higher valuation multiples, with investors likely to reward resilient supermajors like Delta, United, and American, while those re-accelerating domestic capacity growth in the fourth quarter may see multiples de-rate. Shares of the combined airline have risen 60% since the merger closed.