Tuesday, UBS initiated coverage on Alaska Air Group, Inc. (NYSE: NYSE:ALK) shares, bestowing a Buy rating and setting a price target of $72.00. The firm anticipates solid revenue growth for the airline, fueled by several factors including an increase in premium revenue, expected synergies from its recent Hawaiian Airlines acquisition, and an overall industry shift towards reduced capacity.
Alaska Air, while not as large as some major network airlines, operates a substantial long-haul network in the Western United States. This network supports the airline's robust premium service offerings, which contributed approximately 32% of its revenue in 2023. The airline has also signaled potential to exceed its $235 million synergy target from the Hawaiian Airlines acquisition.
The reduction of airline capacity in California and Hawaii by competitors is seen as a potential avenue for Alaska Air to increase its available seat miles (ASMs) and strengthen revenue per available seat mile (RASM) in 2025. UBS expects these factors to significantly enhance the airline's earnings per share (EPS), projecting an approximately 65% growth in EPS for 2026 compared to 2024.
The positive outlook from UBS reflects confidence in Alaska Air's revenue growth capabilities and its potential to capitalize on current market conditions to enhance shareholder value. The $72.00 price target suggests a bullish stance on the airline's stock performance going forward.
In other recent news, Alaska Air Group reported strong third-quarter earnings with a GAAP net income of $220 million and an adjusted net income of $327 million. The company also finalized its merger with Hawaiian Airlines, which is expected to dilute Alaska's earnings by 22% in 2025, although Melius Research expressed optimism about the potential for management to enhance Hawaiian's fundamentals.
To manage the financial implications of the merger, Alaska Air launched a $1.5 billion financing initiative backed by its customer loyalty program and issued $1.25 billion in senior secured notes.
In the wake of these developments, Goldman Sachs resumed coverage on Alaska Air, issuing a Buy rating and setting a price target of $70.00. Other analysts' views varied; Barclays (LON:BARC) maintained an Overweight rating with a $55.00 price target, Melius Research upgraded the company's shares from Hold to Buy, setting a new target of $56.00, while TD Cowen reduced its price target to $50 but maintained a Buy rating.
Alaska Airlines also announced the promotion of five executives to key roles, following the acquisition of Hawaiian Airlines. This strategic move aims to bolster the airline's commitment to growth and enhance its travel experience for customers. These are the recent developments for Alaska Airlines.
InvestingPro Insights
Recent data from InvestingPro aligns with UBS's bullish outlook on Alaska Air Group (NYSE: ALK). The company's market cap stands at $6.78 billion, with a P/E ratio of 20.95, indicating investor confidence in its earnings potential. This is further supported by an InvestingPro Tip suggesting that net income is expected to grow this year, reinforcing UBS's projection of significant EPS growth.
Alaska Air's revenue for the last twelve months as of Q3 2024 reached $10.75 billion, with a notable quarterly revenue growth of 8.21% in Q3 2024. This growth trajectory supports UBS's anticipation of solid revenue expansion driven by premium services and the Hawaiian Airlines acquisition synergies.
Another InvestingPro Tip highlights that ALK is trading at a low P/E ratio relative to near-term earnings growth, which could be attractive for investors considering UBS's positive outlook. The stock's strong performance is evident in its 51.47% price return over the past three months and its current trading near its 52-week high.
For readers seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Alaska Air Group, providing deeper insights into the company's financial health and market position.
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