Alaska Air Group ALK is gaining from an uptick in air-travel demand (particularly on the leisure front). The upsurge in passenger volumes makes the ALK stock an interesting investment opportunity.
Let’s delve deep to unearth the factors working in favor of the Zacks Rank #2 (Buy) stock.
Northward Earnings Estimates: The Zacks Consensus Estimate for current-quarter and current-year earnings have been revised 35.4% and 9.2% upward, over the past 60 days, respectively. Such favorable estimate revisions reflect brokers’ confidence in the stock.
Given the wealth of information at the brokers’ disposal, it is in the best interest of investors to be guided by their expert advice and the direction of their estimate revisions. This is because it serves as a key indicator in determining the price of a stock.
Upbeat Air-travel Demand & Other Tailwinds: Improvement in air-travel demand bodes well for ALK. On the back of robust air-travel demand and favorable pricing, Alaska Air's top line increased 31% year over year in the March quarter.
ALK estimates second-quarter 2023 total revenues to increase 2.5-5.5% from the second-quarter 2022 actuals. To match the upbeat demand, capacity in the June quarter is expected to expand in the 6-9% range. Management expects to boost its fleet and also workforce in 2023 to meet the high demand.
Alaska Air’s fleet-modernization initiatives are encouraging as well. Moreover, in first-quarter 2023, ALK resumed the share repurchase program by buying 413,554 shares for $18 million. The company anticipates share repurchases of at least $100 million in 2023.
The restrictions under the CARES Act prohibited airlines from paying dividends or buying back shares till Sep 30, 2022. The buybacks at ALK are being made under the $1 billion repurchase plan cleared by the board of directors in August 2015.
Impressive Price Performance: Driven by the rosy air-travel-demand scenario, shares of ALK have gained 2.7% so far this quarter (since Apr 1) against its industry’s depreciation of 0.5%.
Image Source: Zacks Investment Research
Bullish Industry Rank: The industry, to which ALK belongs, currently has a Zacks Industry Rank of 38 (of 250 plus groups). Such a solid rank places the company in the top 15% of the Zacks industries. Studies show that 50% of a stock price movement is directly tied to the performance of the industry group that it hails from.
In fact, an ordinary stock in a strong group is likely to outperform a robust stock in a weak industry. Therefore, taking the industry’s performance into consideration becomes imperative.
Other Stocks to Consider
Investors interested in the Zacks Airline industry may also consider stocks like Copa Holdings CPA and United Airlines UAL, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased 28.5% from first-quarter 2019 levels due to higher yields.
CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% from the comparable quarter of 2019 on higher cargo volumes and yields. Copa Holdings' fleet modernization and cost-management efforts are commendable as well. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 6.15% upward over the past 60 days.
United Airlines is seeing steady recovery in domestic and international air-travel demand. Owing to robust air-travel demand, UAL expects revenues for the June quarter to grow 14-16% year over year.
For 2023, United Airlines expects capacity to be in the high teens. The Zacks Consensus Estimate for current-year earnings has been revised upward by 9.1% in the past 60 days.
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