Today’s Daily Alert features a value pick from the Cabot Benjamin Graham Value Letter, edited by J. Royden Ward. Ward recently published a special feature on undervalued companies with accelerating earnings, a screen that has proven profitable for him before. One of his high-potential, moderate-risk selections is below.
“Based in Las Vegas, Allegiant Travel Company (ALGT, $70) offers scheduled passenger service from small U.S. cities to world-class leisure destinations such as Las Vegas, Phoenix, Fort Lauderdale, Orlando and Tampa/St. Petersburg. Allegiant Air operates a low-cost, high-efficiency passenger airline offering air travel on a stand-alone basis or bundled with hotel rooms, rental cars and other travel-related services. Allegiant’s unique niche connecting small cities to major leisure destinations is enjoying minimal competition with only 8% of its routes covered by competitors.
“Allegiant was ranked ninth in the 2011 Forbes’ Best Small Companies list. The company was also named one of Fortune magazine’s “100 Fastest-Growing Companies” for the second consecutive year. Revenues increased 19% and EPS (earnings per share) soared 59% during the first half of 2012. The airline added 19 new routes and one new destination: Honolulu. Allegiant also transformed the capacity of its MD-80 planes from 150-seats to more efficient 166 seats. Beginning April 4, the company began charging bag fees for overhead storage on most flights. The fees were not well received, but the airline’s fares, including bag fees, remain lower than its competition.
“Sales will likely rise 19% and EPS will jump 33% during the next 12-month period. The company will be adding new planes, new destinations and a new website within the next several months. ALGT could exceed my forecast if the U.S. economy improves. At 17.2 times my forward 12-month EPS forecast of 4.08, ALGT is undervalued. Medium risk. The stock does not pay a dividend. BUY at the current price. Max Buy Price is 76.28; Min Sell Price is 96.73.”
- J. Royden Ward, Cabot Benjamin Graham Value Letter, August 2012