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Spirit Airlines Incorporated (SAVE)’s Shares Drop As Analysts Expect Near-Term Downside

The shares of Spirit Airlines Incorporated (NASDAQ:SAVE) are trading 8.29% lower after analysts at both Morgan Stanley and Cowen Warn reveal this morning that they suspect near-term downside risk for the stock. According to these analysis firms, the airliner is caught up in a challenging pricing war amid fierce competition from other airline companies. Spirit Airlines Incorporated (NASDAQ:SAVE) has lowered its second quarter fiscal 2015 operating margin guidance to  a range of between 21.0% to 21.5%, along with a fiscal year operating margin guidance of 21.5% to 23.0%. Rajeev Lalwani, an analyst at Morgan Stanley, blamed bad weather conditions as the primary reason behind this downgrade, and believes it is likely to cause a quarterly loss of $20 million. Helane Becker, an analyst for Cowen Warn, mentioned the stiff pricing wars Spirit Airlines Incorporated (NASDAQ:SAVE) is facing in Chicago and Dallas. She further said that the airliner’s move to increase seating capacity in the fourth quarter of fiscal 2015 is an aggressive move. According to the June 2015 traffic release of the company, its load factor was down by 2.3% during the month compared to June 2014, although its revenue passenger miles were up by 25.1% to 1.50 billion during the month.

Biggest Airports in the World

Smart money appears to be in agreement with the latest analyst sentiment, as the funds tracked by Insider Monkey were bearish on the company during the first quarter. 30 investors held $512.52 million of the company’s shares by the end of the period, compared to the start of it when $547.81 million in shares was held by 35 investors. The shares of Spirit Airlines Incorporated (NASDAQ:SAVE) have declined by 23.73% year-to-date, but were actually up slightly during the first quarter when the smart money was trimming their exposure. Even before the latest news, shares were already down heavily since the start of the second quarter.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 135% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

Insiders were bullish on the stock of Spirit Airlines however, with Thomas Canfield, Senior Vice President, General Counsel and Secretary, purchasing 1,200 shares of the company on June 1, 2015. There were a few insider sales during the first half of the year as well, including two sales of 3,000 shares total by Director Stuart Oran. As we consider insider purchases to be a far more telling metric than insider sales, we consider the insider activity to be bullish.

With all of this in mind, let’s take a look at the new hedge fund action surrounding Spirit Airlines Incorporated (NASDAQ:SAVE).

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