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Investing.com -- Shares of Mexican low-cost carrier Volaris were downgraded by Barclays and Morgan Stanley to Equal Weight given the weakening demand on U.S.-Mexico routes and rising macroeconomic uncertainty.
Barclays also slashed its price target to $4.50 from $12, warning that a soft transborder VFR (visiting friends and relatives) market tied to U.S. immigration policy could continue to weigh on results.
The bank said it no longer assumes a quick recovery, noting a weak unit revenue result in 1Q25 and signs the softness may persist in Q2.
“We think that Volaris’ management will do everything in their power to adapt and preserve cash, but the current environment can last longer than expected,” Barclays wrote.
The downgrade follows the company’s 1Q25 results, which Barclays called disappointing, and comes despite a nearly 50% year-to-date decline in the stock.
Morgan Stanley also downgraded Volaris and hacked its price target to $4.40 from $11, saying the company’s updated 2Q guidance suggested “material downside” to prior expectations.
The bank cut 2025 EBITDAR forecasts by 19% and trimmed its target valuation multiple to reflect higher macro risk.
While Morgan Stanley expects a “sequentially better yield environment” in the second half of the year, it said it prefers to stay on the sidelines given ongoing macro pressures and Volaris’ removal of its FY25 margin guidance.
It now sees FY25 EBITDAR at $957 million, down from $1.18 billion previously.
Both banks acknowledged Volaris’ long-term potential tied to Mexico’s underpenetrated aviation market, but said near-term visibility is clouded by weaker traffic and pricing, especially on U.S.-Mexico routes.
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Volaris downgraded by analysts on macro risks, weak U.S.-Mexico demand
