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Here's Why You Should Retain Alaska Air Group (ALK) Stock Now
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Alaska Air Group’s (ALK - Free Report) top line is bolstered by strong air travel demand. The company’s efforts to expand and reward its shareholders are praiseworthy. However, elevated operating expenses and weak liquidity are hurting the company’s prospects.
Factors Favoring ALK
Upbeat air travel demand bodes well for ALK as it delivered a robust top-line performance in the second quarter of 2024. In this quarter, Alaska Air saw a 2% increase in Revenue Passenger Miles (RPMs) and a 6% increase in capacity, measured in available seat miles (ASMs). The company expects this positive trend to continue in the future.
Alaska Air’s efforts to expand are commendable. In the third quarter of 2024, ALK is set to roll out additional First Class and Premium Class seating across more than 200 of its aircraft, including 900ERs, 800, and MAX9s. This expansion will add 1.3 million premium seats annually to Alaska Air’s mainline fleet.
Moreover, the company’s recent partnership with Bilt, allowing customers to pay rent with Alaska’s credit card and earn triple miles, has shown excellent initial results. Such moves not only reflect the airline's commitment to customer satisfaction but also position it to capture a larger market share in the premium travel segment.
The company’s efforts to reward its shareholders are commendable, as share repurchases totaled $28 million in the second quarter of 2024, for a year-to-date total of $49 million. These initiatives not only bolster investor confidence but also positively impact earnings per share. ALK expects the third-quarter EPS in the range of $1.40-$1.60 and adjusted the full-year EPS lower by $0.25 at the midpoint.
Key Risks
The northward movement in operating expenses is adversely impacting Alaska Air’s bottom line. In the second quarter of 2024, total operating expenses increased by 3% year over year. This surge in operating expenses was primarily driven by the rise in labor costs and fuel costs.The labor costs, comprising salaries and benefits (accounting for 30.4% of the total operating expenses), rose by 4% year over year.
Aircraft fuel expenses are also increasing. For the third quarter of 2024, Alaska Air expects the economic fuel cost per gallon to be between $2.85 and $2.95.
The company exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.68. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations.
Shares of ALK have declined 28.1% in the past year compared to its industry’s growth of 10.5% in the same period.
Image Source: Zacks Investment Research
Zacks Rank
Alaska Air currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. RobinsonWorldwide (CHRW - Free Report) and Kirby Corporation (KEX - Free Report) .
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have declined 0.2% in the past year.
KEX holds a Zacks Rank #2 (Buy) at present andhas an expected earnings growth rate of 40% for the current year.
The company has an encouraging track record concerning the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 8.7%. Shares of Kirby have climbed 35.3% in the past year.
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Here's Why You Should Retain Alaska Air Group (ALK) Stock Now
Alaska Air Group’s (ALK - Free Report) top line is bolstered by strong air travel demand. The company’s efforts to expand and reward its shareholders are praiseworthy. However, elevated operating expenses and weak liquidity are hurting the company’s prospects.
Factors Favoring ALK
Upbeat air travel demand bodes well for ALK as it delivered a robust top-line performance in the second quarter of 2024. In this quarter, Alaska Air saw a 2% increase in Revenue Passenger Miles (RPMs) and a 6% increase in capacity, measured in available seat miles (ASMs). The company expects this positive trend to continue in the future.
Alaska Air’s efforts to expand are commendable. In the third quarter of 2024, ALK is set to roll out additional First Class and Premium Class seating across more than 200 of its aircraft, including 900ERs, 800, and MAX9s. This expansion will add 1.3 million premium seats annually to Alaska Air’s mainline fleet.
Moreover, the company’s recent partnership with Bilt, allowing customers to pay rent with Alaska’s credit card and earn triple miles, has shown excellent initial results. Such moves not only reflect the airline's commitment to customer satisfaction but also position it to capture a larger market share in the premium travel segment.
The company’s efforts to reward its shareholders are commendable, as share repurchases totaled $28 million in the second quarter of 2024, for a year-to-date total of $49 million. These initiatives not only bolster investor confidence but also positively impact earnings per share. ALK expects the third-quarter EPS in the range of $1.40-$1.60 and adjusted the full-year EPS lower by $0.25 at the midpoint.
Key Risks
The northward movement in operating expenses is adversely impacting Alaska Air’s bottom line. In the second quarter of 2024, total operating expenses increased by 3% year over year. This surge in operating expenses was primarily driven by the rise in labor costs and fuel costs.The labor costs, comprising salaries and benefits (accounting for 30.4% of the total operating expenses), rose by 4% year over year.
Aircraft fuel expenses are also increasing. For the third quarter of 2024, Alaska Air expects the economic fuel cost per gallon to be between $2.85 and $2.95.
The company exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.68. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations.
Shares of ALK have declined 28.1% in the past year compared to its industry’s growth of 10.5% in the same period.
Image Source: Zacks Investment Research
Zacks Rank
Alaska Air currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Kirby Corporation (KEX - Free Report) .
C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 27.4% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have declined 0.2% in the past year.
KEX holds a Zacks Rank #2 (Buy) at present andhas an expected earnings growth rate of 40% for the current year.
The company has an encouraging track record concerning the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 8.7%. Shares of Kirby have climbed 35.3% in the past year.