Alaska Air Standing Out A Bit, Though Far From Fully-Valued

The last three months have been a little kinder to Alaska Air (ALK), as the shares have outperformed its peer group by close to 10%. Deciding on the “why” for such a short-term move is always dicey, but I would like to think that maybe Alaska Air is finally getting a little credit for its strong ongoing execution, even in the face of growing concerns about excess industry capacity late in 2019 and into 2020.

Although I’m considered about the potential impact of a combination of less industry-wide discipline on capacity and a slowing U.S. economy, I believe Alaska Air is still trading below its fair value. If long-term revenue growth around 5% with high single-digit FCF margins, and/or a forward EBITDAR multiple of 6x, are credible inputs, these shares remain undervalued below $80.

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Alaska Air Standing Out A Bit, Though Far From Fully-Valued