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About Frontier Group Holdings

You can surely say a lot about us at MacroHint.com but you can’t call us surely nor can you say that given our previously expressed opinions that we are the biggest fans of airlines and their associated publicly traded stocks.

The industry is very cutthroat, each company has a lot to sacrifice in terms of margins (more than most, net profit margins), the systems in which airlines run on can become incredibly messy quite quickly, executives at these companies are tasked with keeping customers happy while not losing troves of money and are also immensely susceptible to Mother Nature and her mood swings.

Not to mention what has been more prominent and highlighted in recent history is the inherent vulnerability airlines have as it relates to fuel costs, namely, jet fuel as well as the miles of regulations that these companies must adhere to before even thinking about putting an airplane in the air.

Don’t get us wrong, we think this last point is completely necessary, otherwise we wouldn’t dare step foot on a tin bird ever again.

All of this goes to show that even on a good day, it is incredibly difficult to successfully operate in the airline industry. 

Although in our previous stock analysis article on JetBlue we clearly weren’t fans of this company and its numbers overall, particularly given the present and foreseeable macroeconomic backdrop, maybe low-cost carrier Denver, Colorado-headquartered Frontier Airlines will have some more appealing financials to offer.

Before getting into the numbers themselves, it’s certainly worth briefly stating our opinion that irrespective of the state of both domestic and global economies, low-cost carriers such as Frontier will, from our vantage point, uniquely be able to acquire and maintain customers through the ups and downs of the state of the economy, as many don’t fly Frontier or Spirit for luxury but more so, convenience and travel in its most basic elements.

No offense to any of these low-cost carriers, as they certainly serve their purposes, but to us there’s no point in trying to skirt the facts of life as they relate to the industry in which they operate and their respective business model.

Equally as important, it is worth noting that Frontier has the niche of all niches compared to its competition in the aviation industry; it has an animal on the tail of each of its aircraft.

A shoutout is certainly in order for the likes of Sage the Pygmy Rabbit, Frederick the Bald Eagle and many, more more.

Now that some of the basics have been presented regarding Frontier and its business, let’s take a closer look at the company’s stock and its core relevant financials so as to try to figure out whether or not this company’s stock is worth pondering an investment in.

Frontier’s stock financials

In getting this stock analysis aircraft off of the ground, Frontier Group has a prevailing market capitalization of $2.05 billion while trading at a share price of $9.40, additionally having a currently unavailable price-to-earnings (P/E) ratio all while not issuing its shareholder base an annual dividend.

The airline industry as a whole is mired with costs galore as mentioned in paragraphs above, so it makes plenty of sense that Frontier doesn’t issue an annual dividend at the moment nor does it have a price-to-earnings ratio readily available. 

As is the case with many other companies across a variety of other industries, Frontier and its airline competitors need to absorb, retain and reinvest as much it can back into its business in order to fuel (pun intended) growth as well as be able to simply tend to the handfuls of costs it is responsible for.

So far, so standard.

Moving right along to the company’s balance sheet, Frontier’s executive team is tasked with responsibly managing and deploying approximately $4.5 billion by means of total assets as well as around $4 billion in total liabilities. 

This is far from surprising and somewhat encouraging, as most airlines are bound to have the aggregate amount of its total assets eerily close to the amount of its total liabilities due to the aforementioned slew of (fixed and variable) costs facing airlines every single day as well as the relatively thin margins they have to lean on, as they must stay competitive in their pricing in order to, in more cases than none, simply keep the lights on.

All things generally considered, we favor Frontier’s balance sheet and its overall structure because its total assets outweigh the amount of its total liabilities, which isn’t necessarily the norm throughout the entirety of the airline industry.

As it pertains to the company’s income statement, Frontier’s total revenue has had its fair share of fluctuations, largely due to the impact that COVID-19 historically had on travel, but on a net basis, it has been fairly steady and consistent, barring again, years like 2019 and 2020.

For instance, during each year between 2018 and 2022 (again, excluding 2020), Frontier’s total annual revenue remained consistent, staying in the low-to-mid $2 billion area code, plummeting (as expected) to $1.25 billion in 2020 and subsequently rising out of the aforementioned bound to its latest reported figure of $3.3 billion.

From our viewpoint, all of this makes sense and we don’t shift any blame in Frontier’s direction for its rapid descent in total revenue in 2020, as all airlines were not living their best lives during this period of abrupt economic slowdown.

On the flipside, it makes sense that the company’s total revenue has broken into $3 billion total annual revenue territory in 2022, however, it is our personal opinion that it might not be the most reasonable expectation that Frontier’s total revenue will continue climbing in the next couple of years, COVID-19 or not.

Right now, travel demand is extraordinarily elevated and what goes up surely must come down, at least back to normal, sustainable levels, and for Frontier, we see that in the mid-to-high $2 billion region for years to come.

Of the last of the big three financial statements, the company’s cash flow statement, Frontier was net income positive in both 2018 and 2019, however, subsequently reported negative net income figures in 2020 through 2022, which makes sense given the number that COVID-19 has done and continues to do to the airline industry.

Specifically, although the company’s net income in 2019 was reported as, according to TD Ameritrade’s platform, $251 million, Frontier’s net income dropped the following year to -$225 million, -$102 million the following year and to its latest reported figure of -$37 million, in 2022.

Even though it is clear as all get out that this company is just about as increasingly sensitive to COVID-19 and other global public health emergencies in comparison to other companies in other sectors, we absolutely enjoyed seeing this negative net income gap closing and getting tangibly more and more closer to positive, despite the still frothy economic landscape.

We applaud you, Frontier Airlines Group.

Frontier’s stock fundamentals

Did we happen to mention that the (net) profit margins in the airline industry are nothing to get excited about?

Exhibit A.

According to TD Ameritrade’s platform, Frontier’s trailing twelve month (TTM) net profit margin sits at -1.11% to the industry’s average of 1.54%.

This is pretty much as unexciting as it gets, as the industry’s TTM net profit margin is frighteningly similar to that of the ever so brutal retail sector.

Staying focused on Frontier, however, it’s nice to see that the company isn’t awfully far off from the competition on a TTM net profit margin basis, although it definitely goes to show that, especially for discount, budget airlines, attaining a positive TTM net profit margin, let alone a double digit net profit margin is not common at all.

This doesn’t really motivate us to consider putting a substantial amount of our investable capital into a company with razor-thin margins, although, again, this isn’t all Frontier’s fault; it’s just the status quo of the airline industry.

Therefore, it is all far from shocking that the company’s TTM returns on assets and investment, according to TD Ameritrade’s platform, are both ever so slightly in the red with the industry’s averages being ever so slightly positive, as was essentially the case with each respective TTM net profit margin, as mentioned above.

Should you buy Frontier stock?

While we think there is a lot of value to be added through low-cost carriers such as Frontier Airlines, this stock and its associated core financials don’t get us excited in the slightest. 

Yes, there are a few bright spots for the company but we’d rather consider deploying our capital elsewhere.

Combining the fact that this company and the industry in which it operates is just about as COVID-19-sensitive as it gets, we don’t think this company has bad financials at all, however, even when things are good, things are never going to be great for companies operating in the airline industry, especially in the sense of stock price appreciation, at least, from our vantage point.

Given all of this information, we give Frontier’s stock a “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.