JP Morgan Terms Spirit Airlines A Tactical Trade Due To Possible Merger

Spirit Airlines has made news headlines lately prompting its shares to gain at least 26% in the last month. Notably, there is a huge possibility that the firm will be involved in a merger, as JPMorgan’s analyst, James Baker, upgrades the shares to an incredible Overweight from Neutral as a result of these developments.

Today, there appears to be a bidding war for the firm’s shares as JetBlue Airways increased its offer for SAVE on June 6 to convince the company’s shareholders to forgo the bid that was submitted by Frontier Air Group.

In the meantime, Finbold reported that James Baker is convinced that the deal will be settled once shareholders approve one of the submitted offers, ascribing a major possibility of it happening.

“Ascribing an 80% probability of achieving a $31.50 (JetBlue offer) outcome and 20% to current levels, our Spirit price target rises from $24 to $30 and our rating from Neutral to Overweight, relative to a field of five ‘Neutrals.’”

Spirit Airlines Shares YTD

Trading of SAVE shares in 2022 has been quite erratic with the shares moving from $16 at some point to $27, with significant trading volume spikes. As it appears, the support line was established at about $16, while the resistance is at around $28. Currently, the shares are bouncing between the 50-day and 200-day Simple Moving Averages (SMAs).

In the same context, analysts now rate the shares as a moderate buy, forecasting that in the coming 12 months, the average price of the shares will be $26, around 16.70% higher than the current trading price of $22.28.

In general, a merger between Spirit Airlines and any of the two airlines which submitted their bids could make a lot of sense from a synergy side. But in terms of the offer themselves, it seems like the devil is in the details. Shareholders are expected to approve the deal that will create the most value for them and the company moving forward.

Taking the current state of affairs into consideration, it would appear that a more reasonable price for SAVE shares would rotate around $30.