Back to top

Image: Bigstock

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

Read MoreHide Full Article

Alaska Air Group, Inc. (ALK - Free Report) is benefiting from investor-friendly steps and strong air-travel demand. However, low liquidity is worrisome.

Factors Favoring ALK

An improvement in air-travel demand bodes well for the company. The carrier is seeing continued improvement in air-travel demand. On the back of upbeat air-travel demand and favorable pricing, Alaska Air's top line increased 16% year over year in the first half of 2023. Alaska Air expects to boost its fleet and also workforce in 2023 to meet the anticipated high demand.

On a shareholder-friendly note, ALK’s 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 second-quarter 2023, ALK repurchased 871,987 shares for almost $39 million. The company expects share repurchases of at least $100 million in 2023.

Key Risks

Alaska Air's declining current ratio (a measure of liquidity) is concerning. The carrier exited the fourth quarter of 2022 with a current ratio of 0.64, indicating a sequential decline of 4%. The reading has decreased sequentially in both quarters of 2023 as well and maintained this dipping trend.

Reduction in this key ratio generally implies that the company's ability to generate cash is on the fall. Moreover, a current ratio of less than 1 often implies that the company doesn't have enough liquid assets to cover its short-term liabilities.

Zacks Rank

ALK currently carries Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) and Ryder System (R - Free Report) .

GATX, which presently carries a Zacks Rank #2 (Buy), has strengthened its railcar leasing operations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.

Ryder, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.

Despite weak market conditions, Ryder reported better-than-expected earnings in second-quarter 2023. In fact, the company has an impressive earnings surprise history. R has surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark once), the average beat being 11.2%.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Ryder System, Inc. (R) - free report >>

Alaska Air Group, Inc. (ALK) - free report >>

GATX Corporation (GATX) - free report >>

Published in