Citigroup's research division has downgraded Spirit Airlines' stock to a "neutral" rating from a "buy" rating following news that private equity firm Indigo Partners will sell its holdings in the Miramar, Florida-based carrier.
"Although Spirit's long-term investment case remains very attractive, the planned offering equates to 17% of the carrier's total shares outstanding," Citi notes in a 29 July research report. "In light of this significant overhang risk, investors could have better buying opportunities once the offering is done."
"Overhang" occurs when the sale of a large block of stock depresses the stock's price.
Citi also revises its price target on the stock to $37 from $41, says the report.
Spirit announced on 29 July that Phoenix-based Indigo Partners will sell all its Spirit holdings, worth some $400 million.
On 29 July Indigo owned 12.1 million shares, or 16.6% of all Spirit's outstanding stock, according to the airline.
Indigo Partners, headed by former America West Airlines chief executive Bill Franke, is rumoured to be in talks with Republic Airways Holdings to purchase that company's subsidiary Frontier Airlines.