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Bear of the Day: Alaska Airlines (ALK)

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Based in Seattle, WA, Alaska Air Group Inc. (ALK - Free Report) is an airline carrier that covers the western United States, Canada, and Mexico; it also offers passenger and cargo services to and within Alaska, as well as some Hawaii routes.

Q3 Earnings Recap

ALK posted another big loss for the third quarter.

Adjusted net loss came to $399 million, or a loss of $3.23 per share, lagging behind the consensus estimate of a loss of $3.01 per share.

Capacity remained significantly lower over the year-ago period, down 55.1%.

Total revenue fell 70.7% to $701 million.

While Alaska’s Q3 performance looks weak on paper, it’s important to note that each major metric is an improvement over Q2.

Management noted on the company’s earnings call that demand is gradually improving on a month-by-month basis as well.

Bottom Line

ALK is now a Zacks Rank #5 (Strong Sell).

Four analysts cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 33 cents to a loss of $10.24 per share; earnings are expected to experience a triple-digit decline for 2020.

Shares have fallen about 22% year-to-date, significantly lagging the S&P 500’s 15.7% rebound during the same time frame.

2021 will likely still be challenging for Alaska Airlines. The outlook for airline travel is very dependent on the efficacy of a coronavirus vaccine, and as we’ve learned from this year, nothing is for certain.

Additionally, the airline will continue to have grounded planes this winter, and there’s a good chance that it may never get back some of its business travel and the revenue that generated.

ALK does, however, have a few things working in its favor. It boasts a very solid balance sheet, with $5.5 billion in liquidity, and once the company unblocks middle seats, it should be able to reach cash breakeven. Plus, ALK has announced many new service routes that appeal to travelers looking for “sun and snow” activities during the pandemic.

But until the travel market looks brighter, it may be best to stay on the sidelines.

Investors who are interested in adding a transportation stock to their portfolio could consider freight transportation services and solutions company ArcBest Corp. (ARCB - Free Report) . ARCB is a #1 (Strong Buy) on the Zacks Rank, and shares have jumped roughly 54% since the beginning of the year.

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