Unlike most airlines,
Alaska Air Group Inc.
(
ALK
) has a solid balance sheet, has been consistently profitable the
last several years and generates solid profit margins and
attractive returns on capital.
It's also coming off its second best March quarter ever despite a
19% increase in fuel costs. This marked the company's 7th positive
earnings surprise in the last 8 quarters. And analysts have been
raising their estimates recently thanks to a sharp drop in oil
prices. It is a Zacks #1 Rank (Strong Buy) stock.
The valuation picture looks very attractive with shares trading at
just 7x 12-month forward earnings and 6x cash flow. And it sports a
PEG ratio of just 0.4.
Company Description
Alaska Air Group is the holding company for Alaska Airlines and its
subsidiary Horizon Air. The company serves more than 90
destinations throughout North America.
It is headquartered in Seattle (no, not Alaska) and has a market
cap of $2.6 billion.
First Quarter Results
Alaska Air reported strong first quarter results on April 19.
Earnings per share came in at 39 cents, well ahead of the Zacks
Consensus Estimate of 35 cents. This was the company's second most
profitable Q1 in its history.
Total operating revenues rose 8% year-over-year to $1.039 billion,
essentially in-line with the consensus. Total passenger revenue
also rose 8% as revenue passenger miles, or "traffic", increased
7%.
Economic fuel cost soared 19% to $3.41 per gallon. But the cost per
available seat mile excluding fuel (CASMex) was up just 1%.
Outlook
Analysts revised their estimates higher for Alaska Air following
its solid Q1 results. And they have continued raising them as oil
prices have fallen sharply over the last several weeks:
It is a Zacks #1 Rank (Strong Buy) stock.
Based on current consensus estimates, analysts are projecting 24%
EPS this year and 11% growth next year.
Attractive Valuation
Despite its strong earnings momentum, shares of ALK trade at just
7x 12-month forward earnigns, a discount to the industry median of
10x. Its price to cash flow ratio is 6, below the peer group
multiple of 8.
Based on a consensus 5-year EPS growth rate of 18%, Alaska Air's
PEG ratio is an attractive 0.4.
The Bottom Line
With strong earnings momentum, solid growth projections and very
reasonable valuation, Alaska Air may soon be flying higher.
Todd Bunton is the Growth & Income Stock Strategist for
Zacks Investment
Research
and Editor of the
Income Plus Investor service
.
ALASKA AIR GRP (ALK): Free Stock Analysis
Report
ALASKA AIR GRP (ALK): Free Stock Analysis
Report
To read this article on Zacks.com click here.