Despite high operating expenses, Alaska Air Group, Inc. (ALK - Free Report) has several positives driving its growth prospects.
Besides revealing encouraging traffic results recently, the carrier provided an upbeat outlook for the second quarter with regard to its key metrics. The company now anticipates Revenue per ASM (RASM) to increase in the range of 3.5-5% year over year compared with a 2-5% rise, expected earlier.
Additionally, the carrier has trimmed its non-fuel unit costs guidance for the current quarter. The metric is now anticipated to ascend approximately 4% year over year, lower than 5% predicted previously. Also, the estimate for economic fuel cost per gallon has been slashed to $2.25 from the earlier forecast of $2.30. This projection denotes a 2% decline year over year.
While healthy unit revenue trends should boost the company’s top line in the second quarter, lower fuel costs will aid its bottom-line growth. The improved non-fuel unit cost view will further bolster earnings in the ongoing quarter.
The Seattle, WA-based carrier’s measures to reward its shareholders through dividends and share buybacks are also noteworthy. In January, the airline announced a 9.4% hike in quarterly dividend to 35 cents per share. As far as buyback is concerned, the company repurchased 776,186 shares for approximately $50 million in 2018. During the first quarter, the carrier repurchased 214,891 shares worth approximately $13 million.
The carrier’s efforts to expand operations across the globe also hold promise. The airline aims to attract traffic by introducing new routes, which will eventually drive the top line. Notably, this March, the carrier launched a daily nonstop service connecting Seattle-Tacoma International Airport with Columbus International Airport. In the same month, it commenced commercial operations from Paine Field-Snohomish County Airport in Everett.
Alaska Air Group’s initiatives to reduce debt levels also raise optimism on the stock. As of Dec 31, 2018, the company had long-term debt of $1,617 million compared with $2,262 million at the end of 2017. Adjusted debt-to-capitalization ratio was 47% during 2018 as compared to 53% at 2017 end. The metric was intact at 47% at the end of the first quarter as well.
In light of these tailwinds, we believe, investors should hold onto this Zacks Rank #3 (Hold) stock for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Transportation sector are Air China Ltd. (AIRYY - Free Report) , SkyWest, Inc. (SKYW - Free Report) and GATX Corporation (GATX - Free Report) . While Air China sports a Zacks Rank #1, SkyWest and GATX carry a Zacks Rank #2 (Buy).
Shares of Air China and SkyWest have gained more than 7% and 33%, respectively, so far this year. Meanwhile, GATX boasts an impressive earnings record, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16%.
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