Alaska Air Group, Inc. (NYSE:ALK) to Grow Earnings Approximately 10% This Year

August 24, 2016

Equity Analyst David Weinstein of Dana Investment Advisors says Alaska Air Group, Inc. (NYSE:ALK) is currently trading at a discount, and over the long term the company should generate significant earnings and cash flow.

All of the major airlines are trading on a forward-earnings basis at single-digit multiples. Alaska is 8.5 times right now. ALK also has a 10% free cash flow yield, and historically, they have generated significant free cash flow. So you’re getting a lot of cash with your investment. You’re getting a company trading at a really significant discount to the broader market and to the industrial sector and to the transports in general.

Returning to the fuel costs, two years ago, crude was $100, right? In 2013 to 2014, crude was $100, and ALK made a lot of money back then. So we know that there’s a defined downsized scenario that we can model. Our view on crude is — and I don’t think this is outside of consensus at all — but our view on crude is that with the technology that fracking has brought to the table, you’re not going to see crude up near $100 in the next several years for any sustained period of time. So we think that fuel costs are an overborne concern. They do affect the quarter-to-quarter EPS volatility, but over the long-term, ALK is generating significant earnings and cash flow, which is supporting your investment.

Weinstein adds:

So what you’ve seen is, of course, Alaska is growing, probably going to grow earnings somewhere in the region of 10% this year. That’s also with a 10% free cash flow yield.

David Weinstein