On Wednesday, Susquehanna maintained a Neutral rating on Alaska Air Group Inc (NYSE:ALK) shares but increased its price target to $45 from $40. This adjustment follows the completion of Alaska Air's acquisition of Hawaiian Airlines (HA), which has led to revised earnings projections.
The firm now estimates that Alaska Air's adjusted earnings per share (EPS) for the second half of 2024 will be $2.60, up from the previous $1.70. For the full year 2025, the forecast has been adjusted to $5.10 from $4.80. These projections take into account a mid-single-digit growth in available seat miles (ASM) for Alaska Air and a high-single-digit ASM growth for Hawaiian Airlines.
Susquehanna's analysis suggests that for the fiscal year 2025, Alaska Air could see an adjusted EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) of approximately $2 billion, along with an EPS of $5.10. The firm's positive outlook on the industry's revenue per available seat mile (RASM) has contributed to an increase in the EBITDAR and P/E (price-to-earnings) multiples by half a turn each, to 5x and 8x, respectively.
The revised stock price target of $45 reflects the changes in profit and loss, cash flow, and the updated target multiples following the acquisition. Alaska Air's strategic move to acquire Hawaiian Airlines appears to have positioned the company for stronger financial performance in the upcoming years.
In other recent news, Alaska Air Group's financial performance and strategic developments have been in the spotlight. The company recently reported a GAAP net income of $220 million and an adjusted net income of $327 million for the second quarter.
The company's financial health has been bolstered by a $1.5 billion financing initiative, backed by its customer loyalty program. The proceeds from this initiative are expected to be used for redeeming debts from its merger with Hawaiian Airlines and for general corporate purposes.
Moreover, Alaska Air Group has finalized its $1.9 billion merger with Hawaiian Airlines. The combined entity will continue to operate independently until a single operating certificate from the Federal Aviation Administration is secured, enabling the airlines to function as a single carrier. This merger is expected to result in nearly 1,500 daily flights with a fleet of 350 aircraft and a workforce of over 33,000 individuals.
TD Cowen has adjusted its outlook on Alaska Air Group, reducing the price target to $50 from the previous $52, while maintaining a Buy rating. The firm's analysis suggests potential long-term synergies from the merger, despite a projected dilution to the fiscal year 2025 adjusted earnings per share (EPS). However, by the fiscal year 2026, the merger could become around 7% accretive to the adjusted EPS.
Moreover, Alaska Airlines has announced new appointments within its cargo division, aiming to strengthen operations post-merger. The company has also initiated a private offering of senior secured notes due in 2029 and 2031, with the proceeds intended for redeeming outstanding debt from its merger with Hawaiian Airlines and bolstering its liquidity for general corporate purposes. These are the recent developments in the company.
InvestingPro Insights
To complement Susquehanna's analysis of Alaska Air Group Inc (NYSE:ALK), InvestingPro data offers additional insights into the company's financial health and market performance. The company's P/E ratio (adjusted) for the last twelve months as of Q2 2024 stands at 11.24, significantly lower than the current P/E ratio of 24.07. This discrepancy suggests potential undervaluation, aligning with an InvestingPro Tip that ALK is trading at a low P/E ratio relative to near-term earnings growth.
The company's revenue for the last twelve months as of Q2 2024 reached $10.52 billion, with a modest growth of 1.74%. While this growth is positive, it's worth noting that the EBITDA saw a decline of 16.64% over the same period, indicating some pressure on profitability. Despite this, an InvestingPro Tip highlights that net income is expected to grow this year, which could explain Susquehanna's optimistic EPS projections for 2024 and 2025.
Investors should also consider that ALK's stock price movements are quite volatile, as pointed out by another InvestingPro Tip. This volatility is reflected in the company's varied price returns across different timeframes, with a notable 24.06% return over the past year.
For those seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Alaska Air Group, providing a deeper understanding of the company's financial position and market outlook.
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