Alaska Air Group, Inc. ALK is currently mired in multiple headwinds, which, we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for the current quarter has been revised downward by 87.1% to 20 cents over the past 60 days.
For the current year, the consensus mark for earnings has moved 26.5% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank and Style Score: Alaska Air currently carries a Zacks Rank #5 (Strong Sell). Moreover, the company’s current Growth Score of C shows its unattractiveness.
Unimpressive Price Performance: ALK has fallen 18.8% over the past year compared with its industry’s 4.2% decline.
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Other Headwinds: The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line. High fuel costs due to an escalation in oil prices are a bane and have hurt Alaska Air's third-quarter results. Evidently, oil prices jumped 28.5% in the July-September period due to an extension of production cut by Saudi Arabia and Russia through the current year end.
As fuel expenses represent a key input cost for any airline player, an uptick in these costs naturally hurt ALK’s bottom line in the third quarter. Economic fuel price per gallon was $3.26, up 18.1% from second-quarter 2023 levels. The actual figure was even higher than the third-quarter guidance issued in September following a rise in oil prices. In September, management raised its guidance for third-quarter fuel cost per gallon in the $3.15-$3.25 band (earlier estimate was in the $2.7-$2.8 range).
Woes related to high fuel costs are likely to hurt fourth-quarter 2023 results as well. ALK forecasts fourth-quarter economic fuel cost per gallon in the $3.30-$3.40 band.
The northward movement in expenses on labor is also affecting ALK's bottom line by pushing up operating costs. Evidently, operating expenses were up 5% in the first nine months of 2023. Expenses on wages and benefits increased 17% in the same time period. The labor deal, inked by management with pilots last year, has led to increased labor costs.
Bearish Industry Rank: The industry, to which ALK belongs, currently has a Zacks Industry Rank of 198 (of 250 plus groups). Such an unfavorable rank places ALK in the bottom 24% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Stocks to Consider
Investors interested in the broader Transportation sector may consider stocks like Air Canada ACDVF and SkyWest SKYW.
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid. You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand. The Zacks Consensus Estimate for current-year earnings has jumped 32.6% in the past 60 days.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.
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