Based in Seattle, Washington, Alaska Air Group, Inc. (ALK) is the holding company of Alaska Airlines (Alaska), Virgin America Inc., Horizon Air (Horizon) and other business units. Through its subsidiaries, the company provides passenger and cargo air transportation services. ALK has hubs in Seattle, San Francisco, Los Angeles, Portland, Oregon, and Anchorage. The company operates through three segments — Mainline, Regional, and Horizon.
While most airline stocks have not recovered well since their March lows, ALK has experienced a steady recovery. The stock has gained 51.4% since hitting its 52-week low of $20.02 in March 2020.
The company announced 15 new routes during the third quarter, aimed at connecting West Coast travelers to key leisure destinations. Also, on March 31, 2021, ALK is expected to become a member of the One world global alliance.
Even though the company has been performing better in recent months in terms of flights offered, and passengers carried, its future still looks uncertain. This uncertainty and a few other factors have made our proprietary rating system to rate the stock as “Neutral.” But the stock is better positioned than many of its peers to rebound when the economy recovers.
Here is how our proprietary POWR Ratings system evaluates ALK:
Trade Grade: C
ALK is currently trading above its 200-day moving average of $40.96, but slightly below its 50-day moving average of $50.61. The stock has gained 31.2% over the past three months, reflecting short-term bullishness.
For the third quarter ended September 30, 2020, ALK’s total operating revenues increased 66.5% sequentially to $701 million. Passenger revenue, which contributed 81.6% of total operating revenues, increased more than 85% sequentially to $572 million. While Mileage Plan and other revenue increased 15.1% sequentially to $84 million, Cargo and other revenue increased 15.4% sequentially to $45 million.
In December, ALK announced an agreement in principle with Boeing to restructure the airline’s order to receive a total of 68 Boeing 737-9 MAX aircraft with options for an additional 52 planes. ALK is scheduled to receive 13 planes in 2021, 30 in 2022, 13 in 2023, and 12 in 2024. On December 16, the company announced that it had added new nonstop services from Anchorage to Las Vegas, Denver, and San Francisco, along with the expansion to year-round service to Phoenix.
Buy & Hold Grade: C
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , ALK is poorly positioned. The stock is currently trading 27.1% below its 52-week high of $67.59.
Over the past three years, ALK’s revenue has declined at a CAGR of 12.6%. However, the company has a solid balance sheet, and holds a strong competitive position in its core market.
Peer Grade: B
ALK is currently ranked #3 of 25 stocks in the Airlines industry. Other popular stocks in the Airlines group are Ryanair Holdings plc (RYAAY), Delta Air Lines, Inc. (DAL), and United Airlines Holdings, Inc. (UAL).
While RYAAY beat ALK, gaining 20.1% over the past year, DAL and UAL have lost 33.3% and 52.6%, respectively, over the same period.
Industry Rank: D
The Airlines industry is ranked #107 of the 123 StockNews.com industries. The companies in this industry provide air transportation services worldwide.
Following positive news on the coronavirus vaccines front, investors have grown more optimistic about the airline industry’s recovery, helping stocks gain since early November. With the increasing deployment of the vaccines and consequent easing of travel restrictions, the industry is expected to see significantly better demand this year.
Overall POWR Rating: C (Neutral)
ALK is rated “Neutral” due to its uncertain outlook in the near term despite having positives such as greater number of flights offered and launch of new routes, as determined by the four components of its overall POWR Rating.
After gaining 34.9% over the past six months, ALK is well positioned to return to its growth trajectory and dominate in the United States’ airlines space based on its competitive advantage and continued business growth. In terms of trailing-12-month price-to-sales, the stock is currently trading at 1.22x versus the industry average of 1.36x. At this lower valuation, ALK could be a good bet considering its revenue growth potential.
The consensus revenue estimate of $5.81 billion for 2021 indicates 60.6% increase year-over-year. ALK’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters. Its EPS is expected to grow at 94.9% in 2021.
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ALK shares were trading at $49.86 per share on Tuesday afternoon, up $0.62 (+1.26%). Year-to-date, ALK has declined -4.12%, versus a -0.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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