On Tuesday, UBS initiated coverage on shares of Alaska Air Group Inc (NYSE: NYSE:ALK), assigning a Buy rating with a stock price target of $54.00. The move comes after Alaska Air's stock underperformed compared to the JETS ETF by 15% following the announcement of its potential acquisition of Hawaiian Holdings (NASDAQ:HA) Inc.
According to UBS, the recent underperformance presents an attractive opportunity for investors. The firm suggests that regardless of the outcome of the proposed acquisition, positive aspects exist for Alaska Air's stock.
UBS's analysis indicates that the market's expectations for the airline's 2025 EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent costs) are conservative at $1.57 billion, while UBS estimates a standalone figure of approximately $1.85 billion. Additionally, if the Hawaiian Holdings deal is successful, UBS projects a proforma EBITDAR of $2.35 billion in 2025.
The investment firm highlights Alaska Air's operational strengths, noting its industry-leading profit margins and robust financial position. UBS also points out that Alaska Air could capitalize on several positive industry trends over the next 12 to 18 months. These include an expected increase in revenue per available seat mile (RASM), easing cost pressures, and a resurgence in business travel.
Furthermore, Alaska Air's strategic hubs located in Seattle (SEA), San Francisco (SFO), and Los Angeles (LAX) position the airline to benefit from a potential rise in demand within the West Coast region. UBS concludes that at the current stock price levels, Alaska Air offers a favorable risk-reward ratio, with potential upside outweighing the downside.
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