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Here's Why You Should Retain Alaska Air (ALK) Stock Now

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·3 min read
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Alaska Air Group, Inc.’s ALK shares have rallied 74.5% in the past year compared with 54.9% growth of the industry it belongs to.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

The company’s earnings are anticipated to register growth of 75.4% and more than 100% in 2021 and 2022, respectively.

Key Growth Drivers

With air-travel demand improving, Alaska Airlines, the wholly-owned subsidiary of Alaska Air Group, is constantly looking to add routes and broaden its network to meet the anticipated demand swell. Evidently, the airline launched a daily non-stop service from Boise Airport to Chicago O’Hare International Airport and Austin-Bergstrom International Airport. In another expansion move, the carrier also announced plans (starting this winter) of start operating seasonal flights from San Francisco, Portland and Palm Springs to destinations across North America.

With increased vaccinations and easing coronavirus-led restrictions, the airline is seeing an increase in air-travel demand. This bodes well for the company with the summer season approaching. Driven by higher demand, the carrier aims to operate at 80% of 2019 levels in the second quarter. Load factor is expected in the 70-75% range.

Primary Concern

Despite improving, air-travel demand continues to be below pre-pandemic (2019) levels. Capacity cuts in response to the low air-travel demand are leading to hikes in non-fuel unit costs. Cost per available seat mile, excluding fuel (CASM ex-fuel) surged 40.8% year over year in 2020 mainly due to 44.3% reduction in capacity. The same increased 18.5% year over year in the first quarter with 32.1% drop in capacity. For the second quarter, the carrier estimates non-fuel unit costs to rise 15-17% from second-quarter 2019 levels. Escalating non-fuel unit costs might hurt the already weak bottom line.

Zacks Rank & Stocks to Consider

Alaska Air currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Landstar System, Inc. LSTR, Old Dominion Freight Line, Inc. ODFL and FedEx Corporation FDX. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for Landstar, Old Dominion and FedEx is projected at 12%, 21.9% and 12%, respectively.

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FedEx Corporation (FDX) : Free Stock Analysis Report

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Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report

Landstar System, Inc. (LSTR) : Free Stock Analysis Report

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