BUSINESS
Alaska Air Group, Inc., through its subsidiaries, provides 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. Alaska Air Group, Inc. was founded in 1932 and is based in Seattle, Washington.
INVESTMENT RATING
ALK is expected to continue to be a major Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
ALASKA AIR GROUP INC has a current Value Trend Rating of D (Negative).
The Value Trend Rating reflects very contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. ALASKA AIR GROUP INC has a good Appreciation Score of 79 but a very low Power Rating of 3, leading to the Negative Value Trend Rating.
ALASKA AIR GROUP INC’s stock is selling well below targeted value. The current stock price of $37.28 compares to targeted value 12 months forward of $85.
ALASKA AIR GROUP INC’s high appreciation potential results in an appreciation score of 79 (only 21% of the universe has greater appreciation potential.)
ALASKA AIR GROUP INC has a Power Rating of 3. (ALK’s very low Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 3% of companies in the universe.)
Factors contributing to this very low Power Rating include: ALK’s earnings estimates have fallen very significantly in recent months; the Air Transport, Scheduled comparison group is in an extremely unfavorable position currently; and recent price action has been unfavorable.
INVESTMENT PROFILE
ALK’s financial strength is low. Financial strength rating is 21.
Relative to the S&P 500 Composite, ALASKA AIR GROUP INC has significant Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that ALK is higher risk. All factors are relative weaknesses. Relative weaknesses for ALK include: low financial strength, low expected growth, low historical growth, and high earnings variability. ALK’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. ALK has unusually low market capitalization.
CURRENT SIGNALS
ALASKA AIR GROUP INC’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
ALASKA AIR GROUP INC’s current technical position is mixed. The stock price is in a 1.9 month up move. The stock has appreciated 30.2% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
ALASKA AIR GROUP INC (NYSE: ALK). Significant negative changes in fundamentals have recently occurred: the consensus estimate for December, 2024 decreased significantly, and the consensus estimate for December, 2025 decreased significantly.
The stock is currently rated D.
ALASKA AIR GROUP INC (NYSE: ALK) stock rose modestly by 0.9% on 3/7/24. The stock closed at $37.28. Trading volume in this advance was normal. The stock has been weak relative to the market over the last nine months and has declined -2.1% during the last week.
CASH FLOW
In 2023, ALASKA AIR GROUP INC experienced a very significant reduction in cash of -$626 million (-26%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$1,288 million. Non-operating uses consumed -$393 million (-31% of EBITDA). Cash taxes contributed +$33 million (+3% of EBITDA). Re-investment in the business amounted to -$1,533 million (-119% of EBITDA). On a net basis, debt investors pulled out -$83 million (-6% of EBITDA) while equity investors provided +$62 million (+5% of EBITDA).
ALK’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Alaska Air Group Inc Peer Group. In most years, ALASKA AIR GROUP INC was in the top quartile and third quartile. Currently, ALASKA AIR GROUP INC is lower quartile at -31% of EBITDA (-$393 million).
ALK’s Cash Taxes, %EBITDA enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Alaska Air Group Inc Peer Group. In most years, ALASKA AIR GROUP INC was in the top quartile and lower quartile. Currently, ALASKA AIR GROUP INC is upper quartile at +3% of EBITDA (+$33 million).
ALK’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Alaska Air Group Inc Peer Group. In most years, ALASKA AIR GROUP INC was in the third quartile and lower quartile. Currently, ALASKA AIR GROUP INC is lower quartile at -119% of EBITDA (-$1,533 million).
ALK’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Alaska Air Group Inc Peer Group. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, ALASKA AIR GROUP INC was in the lower quartile and top quartile. Currently, ALASKA AIR GROUP INC is below median at -6% of EBITDA (-$83 million).
ALK’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Alaska Air Group Inc Peer Group. In most years, ALASKA AIR GROUP INC was in the top quartile and second quartile. Currently, ALASKA AIR GROUP INC is upper quartile at +5% of EBITDA (+$62 million).
ALK’s Change in Cash, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by stability for the Alaska Air Group Inc Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, ALASKA AIR GROUP INC was in the lower quartile and second quartile. Currently, ALASKA AIR GROUP INC is lower quartile at -49% of EBITDA (-$626 million).
ALK’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Alaska Air Group Inc Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, ALASKA AIR GROUP INC was in the top quartile. Currently, ALASKA AIR GROUP INC is at the upper quartile at +17%.
PROFITABILITY
ALK’s return on equity has eroded very significantly since 2014. The current level is 5.7% versus the high of 28.4% and the low of -44.3%.
This very significant erosion was due to very strong negative trend in pretax operating return and strong positive trend in non-operating factors.
The productivity of ALK’s assets declined over the full period 2014-2023: asset turnover has suffered an downtrend but it experienced a very sharp recovery after the 2020 low.
Reinforcing this trend, pretax margin experienced a strong overall downtrend but it experienced a very sharp recovery after the 2022 low.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
ALK’s return on equity is lower quartile (5.7%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is lower quartile (2.2%) reflecting asset turnover that is at median (0.71X) and lower quartile pretax margin (3.1%).
Tax “keep” rate (income tax management) is at median (72.8%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is above median (3.55X).
GROWTH RATES
There are no significant differences between ALASKA AIR GROUP INC’s longer term growth and growth in recent years.
ALASKA AIR GROUP INC’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 5.6% per year.
Total asset growth has been 8.9% per year.
Annual E.P.S. growth has been -12.8% per year.
Equity growth has been 5.7% per year.
No consensus growth rate forecast is available for ALASKA AIR GROUP INC.
Relative to the Alaska Air Group Inc Peer Group, ALASKA AIR GROUP INC’s historical growth measures are erratic. Equity growth (5.7%) has been at median. Total asset growth (8.9%) has been at median. Revenue growth (5.6%) has been at the lower quartile. E.P.S. growth (-12.8%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, ALASKA AIR GROUP INC’s stock price performance has been variable and significantly below market. Between May, 2013 and March, 2024, ALASKA AIR GROUP INC’s stock price rose +31%; relative to the market, this was a -59% loss. Significant price moves during the period: 1) March, 2020 – March, 2021: +143%; 2) October, 2019 – March, 2020: -59%; and 3) June, 2013 – March, 2016: +215%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -21.8% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -21.8% is lower quartile relative to ALASKA AIR GROUP INC Peer Group.
Current 5-year total return performance of -9.1% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -9.1% relative to S&P 500 Composite, ALASKA AIR GROUP INC’s total return performance is lower quartile relative to ALASKA AIR GROUP INC Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, ALK’s overall valuation is quite low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is below median. Price/earnings ratio is below median. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to ALASKA AIR GROUP INC Peer Group, ALK’s overall valuation is quite low. The highest factor, the price/earnings ratio, is at median. Ratio of enterprise value/earnings before interest and taxes is at median. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
ALASKA AIR GROUP INC has a major value gap compared to the median. For ALK to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.82X to 1.86X. If ALK’s ratio of enterprise value/revenue were to rise to 1.86X, its stock price would be higher by $86 to $123.
For ALK to achieve upper quartile valuation relative to the ALASKA AIR GROUP INC Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.82X to 2.37X. If ALK’s ratio of enterprise value/revenue were to rise to 2.37X, its stock price would increase by $128 from the current level of $37.
VALUE TARGETS
ALK is expected to continue to be a major Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
ALASKA AIR GROUP INC’s current Price Target of $92 represents a +146% change from the current price of $37.28.
This high appreciation potential results in an appreciation score of 79 (only 21% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 79, the low Power Rating of 3 results in an Value Trend Rating of D.
ALASKA AIR GROUP INC’s current Price Target is $92 (+1% from the 2023 Target of $91 and +146% from the 03/07/24 price of $37.28). This plateau in the Target is the result of a +6% increase in the equity base and a -5% decrease in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 17.7% — above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly above the 2021 low of 4%.
PTR’s growth forecast is 5.0% — slightly above our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2019 and 2023. The current forecast is above the 2022 low of 0%.
PTR’s cost of equity forecast is 9.7% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is well above the 2021 low of 2.3%.
At ALASKA AIR GROUP INC’s current price of $37.28, investors are placing a negative value of $-12 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 12.0% versus a cost of equity of 6.8%.
PTR’s 2025 Price Target of $92 is based on these forecasts and reflects an estimated value of existing assets of $51 and a value of future investments of $41.
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