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

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!