Kase's Whitney Tilson Says Spirit Airlines Is His Top Long Bet

  • Tilson see growth potential even as shares have tumbled
  • Online retailer Wayfair is his favorite short, Tilson says

Kase Capital Management founder Whitney Tilson said his top long wager is Spirit Airlines Inc., the no-frills carrier that charges fees for almost everything including water.

The airline’s growth potential and the fact it trades at eight times earnings makes it a good investment, even as its shares have tumbled this year, the hedge-fund manager said.

“The stock’s gotten hammered,” Tilson, 49, said Monday in an interview with Bloomberg Television’s Stephanie Ruhle. “A lot of customers like to criticize it because they really pack people onto the planes, the seats don’t recline. But it’s been growing north of 20 percent a year, it has the highest margins in the airline industry, great returns on equity, net cash position on the balance sheet.”

Spirit, based in Miramar, Florida, has plunged 56 percent since Dec. 31, the second-worst performance in the 11-company Bloomberg U.S. Airlines Index, which has slid 4.5 percent. In September, Barclays Plc raised its 2016 forecast for Spirit’s earnings per share by 18 percent to $5.56.

Tilson said falling oil prices have allowed rivals such as American Airlines Group Inc., which competes on about 50 percent of Spirit’s routes, to engage in a price war with the smaller carrier.

‘Little Minnow’

“And when a giant takes on a little minnow like Spirit, they can hurt Spirit temporarily,” he said. “But here’s the thing: American Airlines’ unit costs are 57 percent higher than Spirit’s. So Spirit is going to win that price war eventually.”

A spokesman for Fort Worth, Texas-based American declined to comment.

Tilson said he’s still betting against Lumber Liquidators Holdings Inc., calling the company “permanently impaired.” He reiterated that Wayfair Inc. is his new favorite stock to short, accusing the online furniture retailer of selling some products that contain formaldehyde, similar to Lumber Liquidators.

A spokesman for Boston-based Wayfair didn’t immediately respond to an e-mail seeking comment.

Wayfair climbed 2.1 percent to close at $37.28 in New York. The shares have surged 88 percent this year.