Market forces rained on the parade of Alaska Air Group, Inc. (NYSE:ALK) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
Following the latest downgrade, the current consensus, from the eleven analysts covering Alaska Air Group, is for revenues of US$4.4b in 2020, which would reflect a sizeable 49% reduction in Alaska Air Group's sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$7.37 in 2020, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of US$5.5b and US$1.27 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 12% to US$39.54, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Alaska Air Group, with the most bullish analyst valuing it at US$51.00 and the most bearish at US$28.00 per share. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 49%, a significant reduction from annual growth of 11% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 21% annually for the foreseeable future. It's pretty clear that Alaska Air Group's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Alaska Air Group. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Alaska Air Group.
Worse, Alaska Air Group is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. To see more of our financial analysis, you can click through to our free platform to learn more about its balance sheet and specific concerns we've identified.
We also provide an overview of the Alaska Air Group Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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