Stock Buy: Alaska Air Group, Inc.

 

Alaska Air Group, Inc. (ALK  51.34 +0.38 +0.75%) is once again pressuring its all-time high after reporting excellent Q2 results on July 22 that saw income double from last year. With the current-year estimate pegged at $6.59, a 168% growth projection from last year, analaysts are looking for a strong finish to the year.

Company Description

Alaska Air Group, Inc., through its subsidiaries Alaska Airlines and Horizon Air Industries, operates as an airline company serving the Western United States, Canada and Mexico. The company was founded in 1932 and has a market cap of $1.81 billion.

Alaska Air Group's share price has been on fire for the last year, more than tripling in price after bottoming out just below $15 in May of 2009. More recently, shares jumped higher on the company's solid Q2 earnings surprise from July 22 that included an 8% earnings surprise.

Second-Quarter Results

Revenue for the period was up 16% from last year to $976 million. Earnings also came in strong at $2.29, 8% ahead of the Zacks Consensus Estimate.

Alaska Air Group noted that its results were driven by a 10% increase in traffic and a slight improvement in prices, where its yield on Alaska Airlines flights was up 6% from last year. The company also noted that its "First bag fee" generated an additional $25 million in revenue during the quarter.

When you add up a bunch of small changes, the impact is significant, fueling a $200 gain in operating cash flow from last year to $334 million.

Balance Sheet

That dynamic enabled Alaska Air Group to strengthen its balance sheet, with its cash, equivalents and short-term securities increasing more than $128 million to $1.171 billion against total debt of $1.8 billion.

Estimates

We have seen some pretty sharp movement in estimates over the last few months, with the current year up $1.31 to $6.58 and the next-year estimate up $1.07 to $6.86, a respectable 4% growth projection.

Valuation

In spite of the strong profile and big gains of the last year, ALK still has value, trading with a forward P/E multiple of 10X against its peers 17X.

2-Year Chart

ALK found a short-term bottom on July 2, having since posted a solid rally to move back within striking distance of the all-time high at $52.91. Take a look below.