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Bear of the Day: Alaska Air Group (ALK)

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Shares of Alaska Air Group (ALK - Free Report) , which owns Alaska Airlines and Horizon Air, have slipped roughly 8% since the start of the year due to rising fuel costs. ALK stock has jumped over the last three months, but the firm’s outlook doesn’t seem very promising.

Overview

Alaska Air officially purchased Virgin America for $2.6 billion in the spring of 2016. The company reportedly beat out the likes of JetBlue (JBLU - Free Report) to acquire the airline. Alaska Air has since rebranded Virgin America under its own brands, which some suggest has hurt the company.

The airline firm also grabbed some sad and negative attention in early August after an employee stole a plane and eventually crashed it on an island in the Puget Sound. Aside from this somber event, which doesn’t reflect on Alaska Air’s actual business, the company’s second-quarter revenues jumped 3% to $2.156 billion.

However, Alaska Air’s quarterly revenues fell short of our Zacks Consensus Estimate. Meanwhile, the company’s economic fuel costs surged 34.5%. This helped the company’s adjusted quarterly earnings fall on a year-over-year basis. Investors should note that Alaska Air, like American (AAL - Free Report) , United (UAL - Free Report) , Delta (DAL - Free Report) , and other airlines will have to try to combat rising fuel costs. Companies might pass these increased fuel costs onto customers, which could lead to less overall traffic. 

Price Movement

Moving on, shares of ALK have surged roughly 120% over the last five years, which outpaces its industry’s 53% and the S&P’s 500 74%. Unfortunately, investors will notice that the last three years have been far less kind to Alaska Air stock.

 

Outlook & Earnings Revisions

Now let’s take a look at what to expect from Alaska Air for the rest of the year. Our current Zacks Consensus Estimate is calling for the company’s third-quarter revenues to pop by 4.15% to hit $2.21 billion. ALK’s fiscal year revenues are projected to jump by nearly the exact same percentage to reach $8.26 billion. Clearly, the company looks like it is expected to expand its top line, but its earnings outlook appears pretty grim.

ALK’s adjusted quarterly earnings are projected to plummet by 30.8% to hit $1.55 per share. Meanwhile, Alaska Air’s fiscal year EPS figure is expected to fall by over 37% to touch $4.16.

Plus, ALK has received six downward earnings estimate revisions for its third quarter over the last 60 days, against just one upward change. Alaska Air has also seen nine full-year and nine fiscal 2019 revisions during this same time period, against only a few positive revisions. 

Bottom Line

Alaska Air is currently a Zacks Rank #5 (Strong Sell) based on its negative earnings revision trend, which helps to show that analysts are less positive about ALK’s future earnings outlook as fuel costs continue to cloud the industry’s near-term strength.

For investors interested in the airline space, they might want to consider Air France-KLM SA (AFLYY - Free Report) , SkyWest, Inc. (SKYW - Free Report) , or Swire Pacific Ltd. (SWRAY - Free Report) , which all currently sport a Zacks Rank #1 (Strong Buy) or #2 (Buy).

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