Alaska Air Group Falls To 52-Week Low On Multiple Challenges

Shares of Alaska Air Group, Inc. (NYSE:ALK) hit a 52-week low of $57.60 during the trading session on Apr 2 before retracing a bit to close at $57.74. The stock has underperformed its industry in a year, having declined 36% versus the industry’s 13.4% rally.

Reasons Behind the Stock’s Plunge

High costs have been burdening the company’s bottom line for quite some time and the fourth quarter of 2017 was no exception. Rising costs are likely to hamper first-quarter 2018 results too. Notably, the carrier expects cost per available seat mile (CASM) excluding fuel and special items to increase approximately 6% year over year.

Additionally, economic fuel cost per gallon is anticipated to ascend 18% in the first quarter. Also, high labor and fuel costs plus expenses pertaining to the Virgin America acquisition might hit the company’s earnings going forward.

This apart, the company has been struggling on the unit revenue front. Last quarter, passenger revenue per available seat mile (PRASM: a key measure of unit revenues) fell 5.1% year over year. A continuous below-par performance of this key metric will probably affect the stock significantly.

Woes related to capacity overexpansion are also hurting the company. Load factor (% of seats filled by passengers) declined in the first two months of 2018. In February, it contracted 80 basis points (bps) to 79.4% as capacity expansion (9%) outpaced traffic growth (7.9%). While in January, the metric deteriorated 230 bps.

The pessimism revolving around the stock is evident from the Zacks Consensus Estimate for first-quarter 2018 being pegged at a loss of 14 cents per share. The consensus mark has been lowered from the previous earnings estimate of 58 cents in the past 90 days. Detailed results will be available on Apr 23. Moreover, the Zacks consensus estimate for current-year earnings has been revised 12.9% downward.

The company’s unimpressive Momentum Score of F further highlights its short-term unattractiveness.

Zacks Rank & Key Picks

Alaska Air Group carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are United Continental Holdings, Inc. (NYSE:UAL) , Atlas Air Worldwide Holdings (NASDAQ:AAWW) and AZUL SA (NYSE:AZUL) . While Atlas Air Worldwide sports a Zacks Rank #1 (Strong Buy), United Continental and AZUL carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of United Continental and AZUL have gained more than 3% and 19%, respectively, in the last six months. While the Atlas Air Worldwide stock has rallied more than 9% in a year.

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