1 Airline Stock That's a Better Buy Than American Airlines

NYSE: ALK | Alaska Air Group Inc. News, Ratings, and Charts

ALK – While pent-up travel demand is aiding the airline industry’s recovery from pandemic-led challenges, operational inefficiencies have forced American Airlines (AAL) to cancel hundreds of flights from its December schedule. In contrast, Alaska Air (ALK) seems to have better capitalized on the rise in demand and is undertaking strategic initiatives to expand its operational capabilities. So, we think ALK could be a better buy than AAL for your portfolio now. Read on to learn more….

American Airlines Group Inc. (AAL) is a network air carrier that provides scheduled air transportation for passengers and cargo. While pent-up travel demand continues to drive bookings, AAL cut more than 14,000 domestic flights from its December schedule as the carrier continues to reduce capacity due to a pilot shortage.

The cuts represent an 8% reduction in AAL’s monthly schedule. AAL’s current schedule has the airline flying with 5.4% less capacity for the entire year than in 2019. In July, the company stated that it expects full-year capacity to be 7.5% to 9.5% lower than in 2019.

On the other hand, Alaska Air Group inc. (ALK), which offers passenger and cargo air transportation services and airline and hotel reservations, recently announced the addition of a new route to its existing operational routes. Beginning November 30, 2022, the company intends to offer nonstop flights between Everett and Anchorage.

In addition, last month, ALK announced a deal with Colorado renewable fuel producer Gevo Inc. to purchase 185 million gallons of biofuel over five years, beginning in 2026. The company’s shares have gained 6.4% over the past three months.

Travel and tourism demand has skyrocketed in the post-pandemic world, driving significant growth for the airline industry. The global domestic aviation market is anticipated to reach $1130.8 billion by 2027, registering a CAGR of 3.2%.

Given its ability to capitalize on industry tailwinds, we believe ALK is a better investment than AAL at the moment.

Here’s what could shape ALK’s performance in the near term:

Robust Financials

For the second quarter ended June 30, 2022, ALK’s total operating revenue increased 79% year-over-year to $2.66 billion. Its operating income came in at $187 million. Its interest income grew 100% from the prior-year quarter. The company reported a net income of $139 million, while its EPS amounted to $1.09.

Impressive Growth Prospects

Street expects ALK’s revenues and EPS to rise 61.3% and 319.2% year-over-year to $9.61 billion and $4.45, respectively, in fiscal 2022. In addition, ALK’s EPS is expected to rise 61.9% in the current quarter ending September 2022 and 395.8% in the next quarter ending December 2022.

Discounted Valuation

In terms of non-GAAP P/E, the stock is currently trading at 10.45x, 34.5% lower than the industry average of 15.93x. Also, its forward EV/Sales of 0.68x is 58.9% lower than the industry average of 1.66x. Moreover, ALK’s trailing-12-month Price/Book of 1.38x is 45.8% lower than the industry average of 2.55x.

Consensus Rating and Price Target Indicate Potential Upside

Of the seven Wall Street analysts that rated ALK, six rated it Buy, and one rated it Hold. The 12-month median price target of $64 indicates a 36.7% potential upside. The price targets range from a low of $45.00 to a high of $98.00.

POWR Ratings Reflect Solid Prospects

ALK has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ALK has a B grade for Sentiment and Quality. Analysts’ solid earnings and revenue growth estimates are consistent with the Sentiment grade. In addition, the company’s impressive financials are in sync with the Quality grade.

Of the 31 stocks in the D-rated Airlines industry, ALK is ranked #5.

Beyond what I stated above, we have graded ALK for Value, Stability, and Momentum. Get all ALK ratings here.

Bottom Line

ALK is expected to benefit significantly from the growing travel demand as the company continues to invest significantly in expanding its operational capacity. In addition, given the favorable analyst estimates, robust financials, and lower-than-industry valuation, we think it could be wise to invest in ALK instead of AAL, which is struggling to stay afloat.

How Does Alaska Air Group Inc. (ALK) Stack Up Against its Peers?

ALK has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with B (Buy) ratings: Deutsche Lufthansa AG (DLAKY), Qantas Airway Limited (QABSY), and International Consolidated Airlines Group S.A. (ICAGY).

ALK shares were trading at $45.20 per share on Tuesday morning, down $1.62 (-3.46%). Year-to-date, ALK has declined -13.24%, versus a -15.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
ALKGet RatingGet RatingGet Rating
AALGet RatingGet RatingGet Rating
DLAKYGet RatingGet RatingGet Rating
QABSYGet RatingGet RatingGet Rating
ICAGYGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com

When is the Stock Bounce Coming?

Higher bond rates have been the main catalyst behind lower stock prices. Yet with the S&P 500 (SPY) pressing down towards the 200 day moving average we are all wondering when stocks will finally bounce. Steve Reitmeister reviews the facts in hand to help investors navigate the choppy investment waters. Read on below for the full story...

These 2 Stocks are Both Clean and Green

Recession is imminent, no recession on the horizon, a soft landing…or small recession…has been the constant and contradictory litany flowing from Wall Street the past year. The combination of interest rates and oil both spiking recently certainly lends credence to some form of recession in 2024. Stocks that have some recession proofing built in, like Clean Harbors (CLH) and Concrete Pumping Holdings (BBCP) definitely deserve a look at this point.

With Oil Soaring, My Under $10 Stock of the Week

The number of oil rigs in the U.S. and Canada has decreased by 170 over the past year. International oil suppliers are cutting output. This opens the door to small oil and gas exploration and development companies like Baytex Energy (BTE).

Income Stock of the Week: Deluxe Corporation (DLX)

Picks and shovels plays are always a great go to area for income because they provide the necessary means for any business to operate. And business operations management is a great way to gain leverage, using a software-based platform that can scale your proverbial picks and shovels. Deluxe Corp (DLX) is a great example of a company executing this model and generating high margins in return.

2024 Stock Market Outlook

The time to think about the 2024 stock market is now. Will it be a bull or bear? Where does the S&P 500 (SPY) end the year? And what are the top picks to outperform? Investment veteran Steve Reitmeister does his level best to answer all these questions. Just read on below...

Read More Stories

More Alaska Air Group Inc. (ALK) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All ALK News