On Friday, Susquehanna adjusted its financial outlook on Alaska Air Group, Inc. (NYSE: NYSE:ALK) stock, increasing the price target to $42 from the previous $40 while maintaining a Neutral rating.
The firm acknowledged the airline's first-quarter revenue per available seat mile (RASM), excluding impacts from the Boeing (NYSE:BA) 737 MAX grounding, which showed a roughly 5% increase. The strength within the leisure travel sector raised questions about consumer behavior changes and potential market share gains at Los Angeles International Airport following network changes by competitor JetBlue Airways (NASDAQ:JBLU).
Alaska Air reported a first-quarter adjusted earnings per share (EPS) of -$0.92, surpassing the higher end of its April guidance of -$1.05 to -$1.15, and outperforming the consensus estimate of -$1.05 and Susquehanna's projection of -$1.10.
Notably, the results included an approximately $162 million impact from the grounding of the Boeing 737 MAX 9 in January. Without this factor, Alaska Air's adjusted EPS would have been a positive $0.03. The company's better-than-expected operational performance was cited as the primary driver of the positive variance compared to Susquehanna's model.
Despite the positive results, the analyst expressed caution regarding the airline's fiscal year 2024 capacity, suggesting that it has not been fully "de-risked." The report pointed out Alaska Air's solid balance sheet, with a first-quarter adjusted net debt to EBITDAR ratio of approximately 1.1 times and a debt-to-capital ratio of around 47%, only a 6-point increase from fiscal year 2019.
Nevertheless, the firm indicated challenges in identifying areas for Alaska Air to significantly reduce costs, especially if the growth profile declines by one to two percentage points, excluding fuel costs.
InvestingPro Insights
As Alaska Air Group (NYSE: ALK) navigates the post-pandemic landscape, real-time data from InvestingPro provides a clearer picture of its financial health and market performance. The company's market capitalization stands at a robust $5.59 billion, and it currently operates with a moderate level of debt, reflected in its price-to-earnings (P/E) ratio of 22.39. More impressively, when adjusted for the last twelve months as of Q1 2024, the P/E ratio drops to a more attractive 10.38, suggesting improved profitability.
InvestingPro Tips highlight that analysts have revised their earnings upwards for the upcoming period, indicating confidence in Alaska Air's potential for income growth. This optimism is backed by a strong return over the last month, with a 17.5% price total return, and an even more significant 27.55% return over the last three months. These metrics suggest that investors may be recognizing the airline's robust operational performance and its ability to navigate current industry challenges effectively.
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