Oaktree Arrives At Its Destination with Spirit Airlines

OAKTREE CAPITAL MANAGEMENTOaktree Capital Management filed with the SEC to disclose that on July 31st it had exited its investment in Spirit Airlines Incorporated (NASDAQ:SAVE). At the end of March, Oaktree had owned 13 million shares of Spirit (see what other stocks were in Oaktree’s portfolio), down from the 22 million it had owned in the second half of 2011. The 13D filing reports a sale of 9.4 million shares to bring the fund’s position to zero, so Oaktree had been selling over the last four months as well. Spirit’s stock has risen 55% in the last year, including over 35% in 2012, and Oaktree manager Howard Marks and his team likely wanted to book their profits on the investment and turn to other opportunities.

Spirit Airlines Incorporated (NASDAQ:SAVE) was a popular stock among other hedge funds in the first quarter as well. PAR Capital Management, managed by Paul Reeder, reported owning 5.4 million shares after dramatically increasing its position in the fourth quarter of 2011 (find other stock picks from PAR Capital Management). Initiating a 3 million share position was Kevin Ulrich’s Anchorage Advisors (see the rest of Anchorage’s portfolio).

Spirit Airlines Incorporated (NASDAQ:SAVE) has drawn attention for its business strategy, which in some ways is modeled after the successful growth of Southwest Airlines (NYSE:LUV). Spirit is focused on regional travel within the northeastern U.S. and to popular tourist destinations from that area such as the Caribbean and Florida. In this way, it has been able to succeed in an industry that is generally despised by investors (and for good reason, following the string of bankruptcies that hit airlines in the 2000s and the industry’s sensitivity to economic activity at one end and fuel prices at the other). Its 10-Q for the second quarter reported a 25% increase in revenue and a doubling of net income compared to the second quarter of 2011 (though the company has also nearly doubled its share count in the last year, meaning that earnings per share have only increased slightly).

Wall Street analysts expect that Spirit Airlines Incorporated will continue to grow its business, and assign it earnings estimates which imply a forward P/E multiple of 8 and a five-year PEG ratio of 0.5. Even at 14 times trailing earnings, Spirit might make a good value buy if it weren’t for its industry; instead, bullish investors will have to be relying on continued growth. Spirit’s closest peers are JetBlue Airways Corporation (NASDAQ:JBLU), a similarly sized airline, and the already mentioned Southwest, which has continued its tradition of low-priced, low-frills air travel. We discussed if Southwest Airlines is a buy last month. These stocks trade at 12 and 21 times trailing earnings, respectively, but sell-side analysts also expect high growth in their businesses bringing both their forward earnings multiples down to 8. This figure is in line with Spirit’s, so the only question facing investors is whether Southwest or Spirit will actually deliver the higher growth that is needed to pull them even with JetBlue. Other major airlines include US Airways Group (NYSE:LCC) and United Continental Holdings (NYSE:UAL). US Airways trades at a remarkably low four times trailing earnings, and analysts expect its business to improve in the future as well; United Continental trades at a trailing P/E of 16 but analyst bullishness on the industry wins out again and its forward multiple is only 3. We’d avoid airline stocks- and, while perhaps Oaktree is taking profits, it surely wouldn’t be selling out completely if it shared the sell-side view of Spirit Airlines Incorporated (NASDAQ:SAVE) and the rest of the industry. Of these listed here, US Airways on its face is the best value play but even in that case we have enough worries about macro factors to keep us out of the stock.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!