Alaska Air Group, Inc. ALK is benefiting from buoyant air-travel demand and shareholder-friendly measures. However, low liquidity is a concern.
Factors Favoring ALK
Improvement in air-travel demand bodes well for the carrier. On the back of upbeat air-travel demand and favorable pricing, Alaska Air's top line increased 31% year over year in the March quarter. It expects to boost its fleet and workforce in 2023 to meet the anticipated high demand.
ALK anticipates second-quarter 2023 total revenues to increase 2.5-5.5% from the second-quarter 2022 actuals. To match the upbeat demand, capacity in the June quarter is expected to expand in the 6-9% range.
On a shareholder-friendly note, management resumed share buybacks this year. The restrictions, under the CARES Act, prohibited airlines from paying dividends or buying back shares till Sep 30, 2022. The buybacks are being made under the $1 billion repurchase plan cleared by the board of directors in August 2015. In first-quarter 2023, ALK purchased 413,554 shares for $18 million. The company expects share repurchases of at least $100 million in 2023.
Alaska Air's declining current ratio (a measure of liquidity) is concerning. The carrier exited fourth-quarter 2022 with a current ratio of 0.64, indicating a sequential decline of 4%. Moreover, the current reading has declined 26.4% from the level reported at the end of March-quarter 2022.
Reduction in this key ratio generally implies that the company's ability to generate cash is on a decline. Moreover, a current ratio of less than 1 implies that the company doesn't have enough liquid assets to cover its short-term liabilities.
Zacks Rank & Key Picks
Currently, ALK carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the Zacks Airline industry are Copa Holdings, S.A. CPA and Allegiant Travel Company ALGT.
Copa Holdings is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. Zacks Rank #1 (Strong Buy) CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 765.6% and 75.4% growth, respectively, on a year-over-year basis.
Allegiant, currently sporting a Zacks Rank #1, also benefits from buoyant air-travel demand. With air-travel demand rising in the United States, operating revenues improved 8.5% year over year in 2022.
Management expects revenues to remain strong in 2023 as well. In first-quarter 2023, operating revenues increased 29.9% on a year-over-year basis. For second-quarter and full-year 2023, ALGT’s earnings are estimated to rise 366% and 192%, respectively, on a year-over-year basis.
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