On Monday, Sun Country Airlines Holdings (NASDAQ:SNCY) received an upgrade in its stock rating from Morgan Stanley, moving from Equalweight to Overweight, while maintaining a price target of $21.00. The investment firm cited the airline's operational performance and management's ability to deliver consistent results as key factors for the upgrade.
The airline, known for its ultra-low-cost carrier model, has demonstrated a strong track record of operational reliability and cost control. Morgan Stanley highlighted Sun Country's flexible business model, which includes not only passenger services but also charter and cargo operations. This diversification allows the airline to navigate the fluctuations in leisure travel demand effectively.
Sun Country's stock is now trading at approximately 9.9 times Morgan Stanley's estimated 2024 earnings per share, compared to competitors Allegiant Travel Company (NASDAQ:ALGT) and Southwest Airlines (NYSE:LUV), which trade at around 11.2 and 15.3 times their respective estimated earnings. Morgan Stanley believes that Sun Country's valuation, coupled with its growth prospects for 2024 and 2025, presents a compelling case for the upgrade.
The firm also noted the resilience of the leisure travel sector, as evidenced by strong consumer surveys and Transportation Security Administration (TSA) data. Despite the overhang of Apollo's ownership and its sell-down since Sun Country's 2021 initial public offering, Morgan Stanley expects the airline's fundamentals to gain prominence as Apollo's stake continues to decrease.
"We believe fundamentals will start to matter again and the attractive valuation will draw new investors", says Morgan Stanley analyst.
Maintaining the $21.00 price target, Morgan Stanley suggests a potential upside of approximately 38% from the current valuation, which is the highest among ultra-low-cost carriers. The firm's earnings per share estimates for Sun Country remain unchanged.
InvestingPro Insights
Following the upgrade by Morgan Stanley, Sun Country Airlines Holdings (NASDAQ:SNCY) has continued to garner attention from the investment community. The airline's operational performance and strategic management have been pivotal in its recent success. As investors look to understand the underlying value of Sun Country, InvestingPro provides a deeper dive into the company's financial health and market sentiment.
InvestingPro data shows Sun Country's market capitalization currently stands at $810.02 million, reflecting the market's valuation of the company. In terms of profitability, the airline's trailing twelve months as of Q4 2023 Price-to-Earnings (P/E) ratio adjusted for special items is 11.22, which is below the industry average, signaling potential undervaluation by the market. Additionally, the company's robust revenue growth of 17.35% over the last twelve months demonstrates its ability to expand effectively in a competitive sector.
Among the key InvestingPro Tips, two analysts have recently revised their earnings expectations upwards for the upcoming period, indicating confidence in the airline's future financial performance. Furthermore, with management's aggressive share buyback strategy, Sun Country is actively working to enhance shareholder value. It's also noteworthy that analysts predict the company will be profitable this year, which is supported by the fact that Sun Country has been profitable over the last twelve months.
To gain access to more in-depth analysis and additional InvestingPro Tips, investors can explore the platform, where they will find 7 more tips for Sun Country Airlines. Use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a comprehensive suite of tools and insights to inform investment decisions.
With its next earnings date on May 2, 2024, investors will be keen to see if Sun Country can maintain its upward trajectory and capitalize on the opportunities ahead. The current fair value estimation by analysts stands at $20.00, with InvestingPro's fair value slightly higher at $20.7, suggesting potential room for growth from its previous close of $15.42.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.