On Tuesday, Morgan Stanley (NYSE:MS) maintained its Overweight rating and $70.00 price target for Alaska Air (NYSE:ALK), following the news that the airline's proposed merger with Hawaiian Airlines has been cleared by the Department of Justice (DOJ). The clearance came after several extended review periods, the latest of which expired on Tuesday at 12:01 AM ET.
Alaska Airlines had initially announced the proposed acquisition in December 2023 and had agreed to extend the DOJ's review period from August 5th to August 20th. Even with the DOJ's clearance, the merger is still pending other standard closing conditions. These include the approval of an interim exemption application by the US Department of Transportation (DOT).
Morgan Stanley's analysis suggests that the merger could position Alaska Airlines to capture a larger share of the premium market than it currently holds with its domestic operations. The firm predicts that the merger could become a unique narrative within the industry. However, it also notes that the integration could present complexities to Alaska Air's straightforward business model, potentially affecting the company's stock in the coming years as it works to return leverage to normal levels.
The plan is for the two airlines to continue operating under their respective brands, unified by a single operating and loyalty platform. The combined entity's headquarters will be located in Seattle and will be led by Alaska Air's CEO, Ben Minicucci.
In other recent news, Alaska Air Group has made significant strides in its merger with Hawaiian Holdings (NASDAQ:HA). The merger has successfully passed a major regulatory review by the U.S. Department of Justice (DOJ), marking a significant step towards finalizing the transaction. The process now moves forward to the U.S. Department of Transportation (DOT) for further approval.
Alaska Air Group has also reported strong second-quarter results, with a GAAP net income of $220 million and an adjusted net income of $327 million. The company's revenue was significantly boosted by nearly $1 billion from premium segments.
In addition to the merger, Alaska Airlines has invested in JetZero, a company developing a blended-wing body aircraft aimed at reducing fuel consumption by up to 50%. This aligns with the airline's commitment to sustainability and its objective of achieving net-zero carbon emissions by 2040.
Analysts from TD Cowen and Susquehanna have provided their perspectives on Alaska Air Group's shares. TD Cowen has maintained a Buy rating, albeit with a reduced price target based on the company's latest guidance. Susquehanna has maintained a neutral rating but lowered the price target due to a challenging operating environment.
InvestingPro Insights
As Alaska Air (NYSE:ALK) navigates the anticipated merger with Hawaiian Airlines, investors may find the latest data from InvestingPro to be of particular interest. The company, with a market capitalization of $4.4 billion, is trading at a forward P/E ratio of 9.2, suggesting a potentially attractive valuation relative to near-term earnings growth. This aligns with one of the InvestingPro Tips, highlighting that ALK is trading at a low P/E ratio in light of its expected earnings growth.
Furthermore, analysts foresee a positive outlook for Alaska Air's profitability, with net income expected to grow this year. This optimistic sentiment is supported by the company's recent profitability over the last twelve months. However, it's worth noting that 12 analysts have revised their earnings estimates downwards for the upcoming period, indicating a cautious perspective on the airline's short-term financial performance.
For those interested in diving deeper, InvestingPro offers a wealth of additional tips (9 more tips available) to guide investment decisions. With the next earnings date on October 17, 2024, and a fair value estimate by analysts at $51, compared to InvestingPro's fair value of $42.61, there's a range of perspectives on Alaska Air's worth. Keeping an eye on these metrics and insights could be crucial for investors as the merger progresses and the airline seeks to expand its market presence.
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