6. Alaska Air Group, Inc. (NYSE:ALK)
Number of Hedge Fund Investors: 28
Alaska Air Group, Inc. (NYSE:ALK) is one of the biggest airlines in the world in terms of scheduled passengers carried. The stock is up about 6% so far this year. But Wall Street sees more upside potential to the stock. Last month, Wolfe Research upgraded the stock to Outperform from Perform, citing corporate recovery, lower regional jet fuel prices, and improving competitive capacity. Wolfe Research set a $55 price target on the stock, which represents a 40% upside potential from the current levels.
In April, Alaska Air Group, Inc. (NYSE:ALK) reported strong Q1 results and gave upbeat Q2 and full-year guidance. The company’s management said that despite significant headwinds the company has exceeded challenges. The company’s management also talked about Boeing-related headwinds and compensations it received from the company during Q1 earnings call:
“As you are all aware, the most significant event this quarter was the accident involving Flight 1282 and the subsequent 4-week grounding of a third of our fleet. Our focus has been on the safe return of our fleet, caring for our employees and guests and enhancing our oversight of the production of our new aircraft. This event also had a substantial financial impact, totaling $162 million, which Boeing has fully compensated us for. To provide clarity on our core business performance, I will discuss our Q1 results, excluding the effects of Flight 1282 and the MAX grounding. During the quarter, we also received a second request for information from the DOJ, regarding our proposed acquisition of Hawaiian Airlines.
We are working to respond to these requests as quickly as possible. Given the substantial volume of information involved, we have granted the government an additional 60 days to review our responses, and we’ll continue to work with them to advance the process as swiftly as possible. We still believe strongly in the pro-consumer and pro-competitive merits of this deal and are excited by the opportunities this will unlock for Alaska, both domestically and internationally. “
In 2024, Alaska Air Group, Inc. (NYSE:ALK) expects its yield per revenue passenger mile to increase 3.5% on a YoY basis. Investors are also looking forward to the regulatory outcome on the company’s plan to acquire Hawaiian Airlines for $1.9 billion deal. Analysts believe if the deal goes through, Alaska Air Group, Inc. (NYSE:ALK) would be able to consolidate the West Coast business.
Alaska Air Group, Inc. (NYSE:ALK) stock is trading at 6.46x 2025 EPS estimate set by Wall Street. This forward P/E ratio is much lower than the industry median of 18.54. Given the company’s EPS growth expectation of 39% in 2025 and 19% in 2026, the stock looks attractively valued.
Diamond Hill Long-Short Fund made the following comment about Alaska Air Group, Inc. (NYSE:ALK) in its Q3 2023 investor letter:
“Other bottom contributors included our long positions in Alaska Air Group, Inc. (NYSE:ALK), Target Corporation and Johnson Controls International (JCI). Shares of regional airline Alaska Air Group and general merchandise retailer Target declined during the quarter amid a weakening consumer and (in Alaska’s case) airline pricing environment.”
