Allegiant Travel CO (ALGT) stock intrinsic value fair value estimate & owner earnings analysis

Allegiant Travel runs Allegiant Air, a low-cost leisure airline that flies people from smaller, under-served U.S. cities to vacation spots on limited-frequency nonstop flights. As of February 1, 2026 it sold 578 routes to 126 cities, and 433 of those routes had no nonstop competitor. Its biggest destinations are Orlando (83 routes), Tampa/St. Petersburg (64), Las Vegas (54), Punta Gorda (52), Phoenix (47), Sarasota (36) and Destin (34). Revenue in 2025 was $2.61 billion. On May 13, 2026 Allegiant completed its purchase of Sun Country Airlines, a Minneapolis-St. Paul leisure carrier that also flies cargo aircraft. Sun Country shareholders received $4.10 in cash plus 0.1557 Allegiant shares for each share. As a result, Allegiant's share count rose from about 18.5 million in February 2026 to 27.3 million at July 31, 2026. The combined company had 195 aircraft at closing. Allegiant also sold its Sunseeker Resort in Florida in September 2025 for about $190 million, after taking large write-downs on the property in 2024 and 2025. How we measure earnings. We value the cash an owner could take out of the business each year: operating cash flow, less stock-based pay, less the money needed to keep the fleet flying, with short-term swings in working capital removed. Two accounting choices matter here. First, Allegiant capitalizes heavy engine and airframe overhauls and spreads the cost over time. We treat that cash as a real, recurring maintenance cost. Second, since May 2023 Allegiant has accrued a pilot retention bonus while it negotiates a new pilot contract. The liability reached $235.9 million at the end of 2025 and is payable once a contract is ratified. We count those accruals as labor cost in the year they were earned. We left out the Sunseeker Resort's construction spending because it was a discretionary side venture that has now been sold. Its write-downs are non-cash and do not reduce our figures. What the record shows. On this basis Allegiant's own owner earnings over 2016-2025 were lumpy and, taken together, slightly negative. They ranged from -$9.66 per share in 2017 to +$10.82 in 2021. The median year was about $0.12 per share, and the ten years added up to roughly -$197 million, even though reported net income over the same years totalled about $616 million. The gap is aircraft spending. Fleet capital spending averaged about 21% of revenue, while depreciation runs near 10% (2025: $249 million on $2.61 billion of revenue). The company keeps replacing old, cheaply bought used Airbus jets with new Boeing 737 MAX aircraft. It took 12 MAX deliveries in 2025 and has firm orders for 34 more, due between 2026 and 2028. That spending is the cost of staying in business, not optional growth. On its own, Allegiant has not turned its reported profits into cash for owners. Because the Sun Country deal changed the business, we value the combined company from here rather than Allegiant's history alone. Starting point. We treat Allegiant on its own as roughly break-even on an owner-earnings basis, about $5 million a year, once the MAX delivery wave passes. Before that it runs well below break-even: we assume about -$60 million a year for the next two years while the 34 contracted aircraft arrive, slightly better than 2025's -$72 million because the loss-making resort is gone. Sun Country reported 2025 revenue of $1.13 billion, net income of $52.8 million, operating cash flow of $157.1 million and capital spending of $73.1 million. Its 2024 figures were similar. After stock pay, aircraft spending and its finance-lease aircraft payments, we estimate it adds about $70 million a year. Sun Country's detailed working-capital movements could not be reconciled, so that figure is an estimate built from Sun Country's reported totals. Base case ($55.95 per share). Allegiant stays near break-even and Sun Country keeps producing about $70 million a year. The combined company achieves half of management's $140 million annual cost-savings target, about $53 million after tax, phased in over three years. We also assume about $30 million a year of integration costs in each of the first two years. Combined owner earnings are about -$2 million in year one, $15 million in year two and $128 million a year from year three, or about $4.65 per share. We keep that level flat with no growth, because Allegiant has grown revenue without growing owner cash. We carry it for 30 years in total. That span rests on the network's long record in cities where most routes face no nonstop rival, and it roughly matches how long the model has lasted. All cash flows are discounted at 6%. Bear case ($2.36 per share). The MAX delivery wave, plus a pilot contract that settles above the rates already being accrued, pushes Allegiant's own owner earnings to about -$120 million a year for two years. After that it stays below break-even at about -$20 million a year. That is close to its ten-year average of about -$20 million. The cost of combining the two airlines' pilot and employee groups absorbs the cost savings, integration costs run about $50 million a year for two years, and Sun Country contributes about $55 million. Combined owner earnings are -$115 million a year for two years and then only about $35 million a year. Given the debt, we end the story after 15 years. Long-term debt was $2.78 billion at June 30, 2026, against about $1.05 billion of cash and short-term investments. In this case the shares are worth only a couple of dollars. The business does not owe more than it is worth, but almost nothing is left for shareholders after the lenders. Bull case ($125.98 per share). The new MAX fleet's fuel and maintenance savings lift Allegiant's own owner earnings to about $40 million a year from year three, after about -$30 million a year during the two delivery-heavy years. Sun Country performs at its better years, about $90 million a year. The full $140 million savings target arrives within three years, about $106 million after tax. Combined owner earnings reach about $236 million in year three and grow 3% a year through year ten, to about $290 million, supported by the growth of the unduplicated route network. They then hold flat through year 30. What would make this wrong. On the downside: a costly pilot contract, delays or cost overruns in the 34-aircraft MAX order book, a messy combination of the two airlines' workforces and systems, or a downturn in leisure travel while debt is high. On the upside: the 737 MAX switch finally shrinking the gap between capital spending and depreciation, which would lift owner cash toward reported profits. The single most important thing to watch is whether the combined company produces positive cash after aircraft spending once the 2026-2028 deliveries are complete. Margin-of-safety price. Airline results swing with the economy and fuel prices, this company is highly indebted, and it is in the middle of both a fleet change and a merger. The bear case leaves shareholders almost nothing. The estimate therefore calls for a wide margin of safety: the margin-of-safety price is about $24 per share, and it applies only once the pilot contract is settled and at least half of the promised savings shows up in reported results.