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Bull of the Day: Alaska Air Group (ALK)


2014 has been a stellar year for the airline industry to say the least. Consolidation has reduced competition, an improving economy is allowing people to fly more, while the oil plunge is slashing the costs for jet fuel.

This confluence of factors has led to amazing performances for the industry. Many stocks have seen gains in excess of 50% YTD, while several names are approaching or are at multi-year, if not all-time, highs.

One stock that definitely fits in with this trend, though it has still been overlooked by many, is undoubtedly Alaska Airlines Group (NYSE: ALK). This company has seen its shares surge by 50 percent so far in 2014, and if you look at some of the trends underpinning this company, there is plenty of reason to believe that more strength is ahead for this airline.

ALK in Focus

For those of you that are unfamiliar with Alaska Airlines, it is important to note that the company is actually based in Seattle, Washington, though it does have a huge operation in Alaska. In fact, ALK makes up about 60% of total passengers carried at Anchorage’s main airport (Ted Stevens), while it also has a big presence at Seattle-Tacoma (51%) as well.

While the company is facing stiff competition from Delta (NYSE: DAL) in Seattle, the company still has plenty of opportunities for expansion by striking into new markets, while also defending its hub in Washington State. In particular, ALK has hit back at Delta at their Salt Lake City hub, so don’t think that Alaska isn’t stealing share from its larger counterpart too.

Beyond that, there is always the possibility of a merger for Alaska, which could also help the company to stretch into even more markets. Both Hawaiian Airlines (NASDAQ: HA) and JetBlue (NASDAQ: JBLU) would arguably make sense for an ALK merger, and it would strengthen their position against the so-called ‘legacy carriers’ as well.

Yet even if a merger doesn’t happen, ALK appears well-positioned for growth in the near term thanks to expansion from its Northwest U.S. hub, and low oil prices which should boost profits. Analysts seem to agree (and do not appear too fazed by Delta’s move into Seattle), as earnings estimates have been soaring as of late for ALK stock.

ALK Earnings Estimates

For the current quarter consensus estimate, earnings have moved from $0.68/share 60 days ago to an impressive $0.83/share today, while we have seen a similar trend for next quarter’s numbers too. The full year figures are really the impressive part, as we have seen strong earnings estimate revision activity in these time frames.

Current year consensus estimates have moved from $3.84/share 60 days ago to $4.06/share today, while for next year figures, we have seen a move from $4.11/share to $4.77/share now. Clearly, analysts are ratcheting up their expectations for ALK and believe that they have strong growth prospects that extend well into the future.

And if you are worried about ALK meeting these lofty expectations, consider that ALK has beaten estimates in all of the last four quarters, with an average beat of 5.1%. ALK is actually riding a streak of five straight beats overall, so don’t worry too much about the company meeting these increased expectations.

 

ottom Line

Thanks to these factors, investors shouldn’t be too surprised to note that ALK has earned itself a Zacks Rank #1 (Strong Buy) and that we expect this company’s solid run to continue into 2015.

It is also worth pointing out that the airline industry overall is very well-ranked too, and that there are few bad choices in this space anyway. In fact, the transportation-airline segment currently has a Zacks Industry Rank in the top 10% overall.

So if you are looking for an impressive airline stock in today’s market that still has room to run, consider Alaska Airlines Group. The company has great expansion opportunities, and with a huge market for air travel, this seems like a probably winner for growth investors in this corner of the market.

 

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