Overstone Global All Cap Value Fund on Allegiant Travel Company
Thesis
Allegiant has faced lower airline profit forecasts after jet fuel prices jumped, but the fund highlights continued business execution. Its merger with Sun Country combines two airlines focused on routes with little direct competition. About two thirds of the combined network has no alternative non-stop operator, and management aims for $140 million in merger synergies. The shares trade at 7.5 times estimated 2027 earnings, including assumptions for higher Middle East-linked fuel costs.
“The shares now trade on 7.5x 2027 price to earnings which allows for higher fuel costs linked to the Middle East.”
Key risks
- Fuel price spikes particularly hurt the low-cost carrier model.
- Refining disruptions in the Persian Gulf can extend elevated jet fuel costs.
- The $140 million synergy target may not be achieved.