Alaska Air Group, Inc. (ALK) and its subsidiaries provide passenger and cargo air transportation services. The company operates through three segments- Mainline; Regional; and Horizon. It flies to approximately 120 destinations throughout North America.

On July 19, 2022, ALK announced plans to become the first U.S. airline to launch an electronic bag tag program later this year. With this device, ALK aims to provide a hassle-free check-in experience and thereby enhance travelers’ convenience.

Moreover, on July 14, 2022, ALK and Microsoft Corp. (MSFT) signed a Memorandum of Understanding to collaborate on advancing the market for sustainable aviation fuels and work toward the first commercial demonstration flight in the United States.

ALK has lost 22% over the past year and 13.2% year-to-date to close the last trading session at $45.24. However, it has gained 9.9% over the past month.

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

Potential Travel Rebound

Travel and tourism demand has soared in the post-pandemic world, which is expected to drive significant growth in the airline industry. According to the latest UNWTO World Tourism Barometer, international tourism witnessed a 182% year-over-year increase in January-March 2022.

Moreover, a survey shows that 83% of tourism professionals see better prospects for 2022 compared to 2021. The global domestic aviation market is projected to grow at a CAGR of 3.2% from 2021 to 2027. This could immensely benefit ALK.

Solid Financials

ALK’s passenger revenue for the second quarter ended June 30, 2022, came in at $2.42 billion, up 78.8% year-over-year. Its total operating revenues came in at $2.66 billion, up 74.1% year-over-year. Also, its cargo revenue came in at $65 million, up 14% year-over-year.

Furthermore, its non-GAAP adjusted net income came in at $280 million, compared to a loss of $38 million in the year-ago period. Its non-GAAP adjusted EPS came in at $2.19, compared to a loss per share of $0.30 in the previous period.

Attractive Valuations

ALK’s forward EV/S of 0.67x is 60.2% lower than the industry average of 1.67x. Moreover, its forward P/S of 0.60x is 55% lower than the industry average of 1.33x. Its forward EV/EBITDA of 4.64x and forward EV/EBIT of 8.73x compare with the industry averages of 10.69x and 15.18x, respectively.

Favorable Analyst Expectations

Analysts expect ALK’s revenue to increase 61% year-over-year in 2022 and 3.7% year-over-year in 2023. Its EPS is expected to increase 315.8% year-over-year in 2022 and 24.7% year-over-year in 2023. The stock has surpassed EPS estimates in each of the trailing four quarters.

Of the seven Wall Street analysts that rated ALK, six rated it Buy, while one rated it Hold. Moreover, Wall Street analysts expect the stock to hit $68.00 in the near term, indicating a potential upside of 50.3%.

POWR Ratings Reflect Promising Outlook

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

It has a B grade for Growth, consistent with its solid financials in the latest reported quarter.

The stock also has a B grade for Sentiment. Favorable analysts’ sentiments around the stock justify this grade.

In the 31-stock Airlines industry, ALK is ranked first.

Click here for the additional POWR Ratings for ALK (Value, Stability, Sentiment, and Quality).

View all the top stocks in the Airlines industry here.

Bottom Line

ALK is a significantly undervalued stock possessing robust financials. And, given its overwhelming growth potential, ALK is an ideal addition to your portfolio amid a probable worldwide travel rebound.

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

While ALK has an overall POWR Rating of B, one might consider looking at its industry peer, International Consolidated Airlines Group S.A. (ICAGY), which has an overall B (Buy) rating.

ALK shares were trading at $44.82 per share on Tuesday morning, down $0.42 (-0.93%). Year-to-date, ALK has declined -13.97%, versus a -12.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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