Alaska Air Group ALK is performing impressively at the moment. Also, we are optimistic on the company’s prospects and believe that the time is right for investors to add the stock to their portfolio.
Let’s take a look into the factors that make this Zacks Rank #2 (Buy) stock a compelling choice for investors right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
An Outperformer: Alaska Air Group has outperformed its industry on a year-to-date basis. The stock has gained 13.7% compared with the industry’s 12% growth.
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Earnings Estimates Moving North: Annual estimates for Alaska Air Group have been northward bound over the past 90 days, reflecting analysts’ confidence in the stock. Over this period, the Zacks Consensus Estimate for current-year earnings climbed 7.8% to $6.35. For 2020, the same inched up 0.3% to $7.05 over the past 90 days.
Given the wealth of information at their disposal, it is in the best interest of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Solid Growth Prospects: The Zacks Consensus Estimate for Alaska Air Group’s current-year earnings indicates a 42.4% improvement year over year, higher than the industry average of 3%. In 2020, the bottom line is anticipated to register 11% growth. The stock also has expected earnings per share growth rate of 19.5% for the next five years compared with a 15.1% increase anticipated for the industry during the same timeframe.
The scenario is impressive with respect to revenues as well. For 2019, the Zacks Consensus Estimate for the company’s top line stands at $8.76 billion, implying 6.1% growth year over year. For 2020, the average forecast is pinned at $9.25 billion, reflecting a 5.52% improvement year over year.
Impressive Earnings Surprise History: Alaska Air Group has an impressive earnings surprise history. The company has outpaced the Zacks Consensus Estimate in each of the past four quarters. The average earnings beat is 9.2%.
Tailwinds: Alaska Air Group, like most other airline players including the likes of Delta Air Lines DAL, United Airlines UAL and American Airlines AAL, is being aided by upbeat passenger revenues, which account for the bulk of the top line. Passenger revenues, which grew 5% in the first nine months of 2019, are expected to rise through the remainder of 2019 as well, courtesy of strong demand for air travel. Furthermore, the company’s unit revenue outlook for the fourth quarter looks promising. The carrier anticipates total revenue per available seat mile (RASM) to rise 1-4% in the December quarter. On another positive note, fuel costs are expected to decline 8.1% year over year to $2.16 in the December quarter. As fuel expenses comprise a major chunk of airline expenditure, a decline in costs is likely to boost earnings.
We are also impressed by the company’s efforts to reward its shareholders through dividends and buybacks. Solid free cash-flow generation supports the shareholder-friendly activities of the carrier. Notably, the company’s free cash flow soared more than 90% year over year to $950 million in the first nine months of 2019.
Style Scores: Alaska Air Group has a Value Score of A, Growth Score of B and VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
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