Here's Why You Should Hold Onto Alaska Air Group (ALK) Now

Shares of Alaska Air Group (NYSE:ALK) lost 13.55% in the last three months, underperforming the Zacks categorized Transportation - Airline industry’s gain of 2.57% in the same period as costs related to its acquisition of Virgin America are hurting earnings growth.

Merger-related costs hurt the bottom-line in the first quarter. In the first quarter of 2017, the bottom line contracted 27.6% on a year-over-year basis due to higher costs. Revenues, however, grew 29.8% on a year-over-year basis, mainly due to the expanded product portfolio following the Virgin America purchase.

Even though the bottom line contracted, the company managed to beat the Zacks Consensus Estimate in the first quarter of 2017. We note that Alaska Air Group has an impressive history with respect to earnings, having outshined the Zacks Consensus Estimate in each of the last four quarters.

We are impressed by the company’s move to hike its quarterly dividend by 9% to 30 cents per share. During 2016, the company returned $329 million to shareholders through buybacks ($193 million) and dividend payments ($136 million).

We are also positive on the U.S. Transportation Department's decision to award (tentatively) Mexico City slots to the carrier. The company's acquisition of Virgin America is a huge positive. Following the acquisition, Alaska Air Group has expanded significantly, particularly along the West Coast.

At the end of the first quarter, the company had $1,710 million in cash and marketable securities, compared with $1,580 million at the end of 2016. Long-term debt also reduced to $2,531 million in the quarter from $2,645 million at the end of 2016. Moreover, adjusted debt-to-capitalization ratio was 58%, compared with 59% at 2016-end.

In view of the positives, we believe Alaska Air Group’s stock should be retained by investors for now.

Zacks Rank & Key Picks

Alaska Air Group currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space are Deutsche Lufthansa (DE:LHAG) AG (OTC:DLAKY) , Ryanair Holdings PLC (NASDAQ:RYAAY) and SkyWest, Inc. (NASDAQ:SKYW) . All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Deutsche Lufthansa and Ryanair Holdings gained over 42% and 17%, respectively, on a year-to-date basis. SkyWest has an impressive earnings history. The company beat the Zacks Consensus Estimate in each of the last four quarters, with a positive earnings surprise of 13.81%.

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