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© Reuters. Spirit Airlines (SAVE). Rises Following JPMorgan Upgrade

Sam Boughedda

Stocks in low-cost carriers Spirit Airlines (NYSE:) Gained Friday, after JPMorgan analyst James Baker upgraded its stock to Overweight from Neutral.

Baker increased Spirit’s price target to $30, from $24, and told investors that a Spirit merger is “highly probable.”

Spirit delayed the shareholder vote for its possible merger with Frontier (NASDAQ;) last week after JetBlue’s (NASDAQ:), second bid was made. Both JetBlue and Frontier improved their offer last week.

Analysts stated that they believed that Spirit and JetBlue mergers were a rising probability, and could overtake Frontier’s chances of happening.

“Most importantly, Spirit shares are trading in line with the proposed Frontier offer, and – owing to the break fee – slightly below what Spirit shareholders would receive if the DOJ were to block the transaction today, holding current share prices constant.”

Baker stated that Spirit shares will be protected against any significant downside in the immediate term. Therefore, they recommend Spirit shares remain held until at least the amended June 30 shareholder vote.

The probability that we achieve a 31.50 (JetBlue) outcome is at 80% and current levels are 20% respectively. This means our Spirit price target will rise from $24 to $30, and our rating from Neutral To Overweight. We also recommend options trading, particularly a July 15th $20/$25 strike-risk reversal (sell an option to purchase a call paying 0.077) [0.32% premium vs $22.29 ref price]”Just over a month ago and through the just delayed shareholder vote (on June 30th),” said the analyst.

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