Allegiant downgraded at Raymond James on stretched valuation
Investing.com -- Raymond James downgraded Allegiant Travel from Strong Buy to Outperform, citing the airline’s recent share strength rather than a deterioration in fundamentals.
Allegiant’s stock has been one of the strongest performers in the sector this quarter. Stock has gained 68% in last six months with 37% from past month.
Raymond James continues to see progress from corrective actions that are largely within the company’s control and not driven by competitive pressures, but said much of that improvement is now better reflected in the share price.
Allegiant did not update its guidance, but the brokerage expects fourth-quarter results to land within the company’s original outlook. It pointed to conservative guidance, the timing of Allegiant’s earnings update in early August, and relatively limited exposure to government-directed capacity cuts. Short interest has also started to unwind since late September as investors have turned more positive on the airline following the removal of the Sunseeker drag.
Beyond Allegiant, Raymond James said its broader update to U.S. airline forecasts reflects mostly temporary fourth-quarter impacts, including the government shutdown, operational disruptions, and fuel price swings. The firm said its view of the U.S. consumer has improved, while early signs point to continued capacity and pricing discipline across the industry heading into 2026.
Demand softened briefly in November following FAA-mandated flight cuts but has since recovered, with early 2026 tracking now back in line with expectations seen in mid- to late October. While demand remains below the highs of late 2024 and early 2025, fares have held up against tough year-earlier comparisons, which Raymond James said was encouraging for revenue trends.
On capacity, the brokerage expects modest domestic growth into 2026, with low-cost and ultra-low-cost carriers leading efforts to rationalize supply. Pricing for close-in bookings has remained resilient, supporting the view that the industry is managing growth more carefully than in past cycles.
Raymond James also reiterated its view that Spirit Airlines is unlikely to remain a standalone company next year, though any upside from consolidation is not included in its forecasts.
The brokerage said Allegiant’s earnings growth should be driven by tighter capacity planning, maturing new routes, a higher mix of premium seating, benefits from reservation system upgrades, and more MAX aircraft entering the fleet, which should support margins over time.
