Alaska Air (ALK) has recently acquired Hawaiian Airlines. While this merger promises to expand the airlines’ reach to 141 destinations, including 29 international markets, systems like reservations and loyalty programs will still operate separately until further integration. Moreover, the company has announced a private offering of $1.25 billion in Senior Secured Notes, aiming to strengthen its financial position. Industry analysts see this as a constructive setup for the company’s revenue with the potential for new opportunities in the low-cost carrier space.
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Market participants have responded by driving the stock up 16% over the past 90 days, making it an attractive option for investors looking for an airline stock with upside potential.
Alaska Airlines Completes its Acquisition
Alaska Air Group operates airlines through several subsidiaries. Its operation is divided into three segments: Mainline, Regional, and Horizon. Its services include scheduled air transportation for both passengers and cargo.
The company has completed the acquisition of Hawaiian Airlines, and the airline will now begin to secure a single operation certificate under one integrated passenger service system. However, the two airlines will function as separate entities, maintaining distinct websites, reservation systems, and loyalty programs until further steps in the integration process are achieved.
Additionally, Alaska Air has announced a private offering of $1.25 billion in aggregate principal amount of notes by AS Mileage Plan IP, LTD., an indirect, wholly-owned subsidiary of ALK. The proceeds from the offering are intended to fund a reserve account, make an intercompany loan to Alaska, and support liquidity, among other activities.
Alaska Air’s Recent Financial Results
The company recently reported results for the second quarter of 2024. Net income was $220 million, a decline from $240 million in the second quarter of 2023. However, excluding special items and mark-to-market fuel hedge accounting adjustments, the net income for the second quarter of 2024 rose to $327 million, still lower than the $387 million from the corresponding period in 2023.
At the end of the quarter, the company held $2.5 billion in unrestricted cash and marketable securities. It ended the quarter with a debt-to-capitalization ratio of 45%, aligning with the target range of 40% to 50%.
Following second-quarter results, ALK’s Management has increased its Q3 earnings per share (EPS) forecast to $2.15-$2.25, up from an earlier prediction of $1.40-$1.60, exceeding the consensus expectation of $1.61. The airline expects total unit revenue to increase by approximately 2% year-over-year. Further, due to moderating crude oil and West Coast refining margins, the anticipated economic fuel cost has dropped to $2.60-$2.70 per gallon for the quarter.
What Is the Price Target for ALK Stock?
After a turbulent post-COVID period, the stock has found positive momentum, climbing 38% over the past year. It trades near the high end of its 52-week price range of $30.75 – $46.87 and shows ongoing positive price momentum as it trades above the 20-day (43.56) and 50-day (41.37) moving averages. It trades at a slight premium to industry peers, based on a P/S ratio of 0.55x compared to the Airline industry average of 0.5x.
Analysts following the company have been mostly bullish on ALK stock. For instance, Susquehanna has raised its price target on Alaska Air from $40 to $45, anticipating a positive outlook for the airline industry into 2025. However, Evercore ISI and TD Cowen have lowered their price targets to $55 and $50 but maintained an optimistic rating for the shares.
Based on seven analysts’ recent recommendations, Alaska Air is rated a Strong Buy overall. The average price target for ALK stock is $53.67, representing a potential upside of 19.43% from current levels.
Final Analysis on ALK
Alaska Air’s recent strategic moves are elevating its position within the airline industry. The company’s recent acquisition of Hawaiian Airlines is a promising development, as is the injection of capital from the Senior Secured Notes offering that fortifies the company’s financial posture. Recent financials show a dip in net income compared to last year, but an optimistic Q3 EPS forecast hints at a positive upward trend. For investors eyeing the airline sector, ALK is a strong contender that seems to be steering toward clear skies.
