Alaska Air recently released its Q1 financial results, surpassing street estimates with revenue of $2.23 billion and an adjusted loss per share of $0.92. The company’s performance was aided by better load factor and yields. Despite a slight stock price decrease from $50 in January 2021 to around $45 currently, ALK has struggled to outperform the S&P 500 over the past three years, posting negative returns in each year. In contrast, the Trefis High Quality Portfolio has outperformed the S&P 500 consistently over the same period.
Considering the uncertain macroeconomic environment with high oil prices and elevated interest rates, questions arise about ALK’s future performance. From a valuation perspective, ALK stock appears attractive, with estimated potential for over 20% upside to $56 per share. This forecast is based on a 12x P/E multiple for ALK and expected earnings of $4.53 per share on an adjusted basis for the full year 2024.
In Q1, Alaska Air’s revenue increased by 2% year-over-year, despite a 2% decline in available seat miles. The company’s load factor improved by 150 bps and yield rose by 1%, contributing to overall top-line growth. However, Alaska Air experienced a margin contraction, with the consolidated adjusted pre-tax margin decreasing to -7% from -5.2% in the prior-year quarter, resulting in a widened net loss of $0.92 per share.
The company’s profitability was impacted by the grounding of Boeing 737 MAX aircraft earlier in the year due to a safety incident. Following this incident, the FAA grounded Boeing 737 Max 9 aircraft, but they were cleared to return to service in February after inspection. Boeing compensated Alaska Air with $162 million in initial cash for the financial impact of the grounding on the airline.
Alaska Air exceeded expectations in Q1 and has raised its earnings outlook for the full year. Despite a 15% rise in its stock price this year, analysts believe there is potential for further growth. Comparing ALK to its peers can provide additional insight into its valuation and potential for future performance. Investors can also explore Peer Comparisons for a comprehensive view of companies across different industries.
