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Are Alaska Airlines shares undervalued?
Alaska reported the highest margins among its peers, with a leverage that is below the peer average.
In 2014, Alaska paid $51 million in dividends and repurchased 5.3 million shares for $242 million, representing ~3.2% of its market capitalization.
Alaska had 22 737-900ERs at the end of 3Q14 and according to the airline’s management, these aircraft helped increased capacity by 15% without adding frequency.
As of December 2013, Alaska had 182 aircraft and the sixth largest market share by capacity among US airlines.
Alaska has reduced its leverage significantly over the past few years, and its debt-to-capital decreased to 30% in FY13 from 68% in FY09.
In 3Q14, Alaska’s cash and marketable securities as a percentage of sales was 25.5%, the highest among its peers.
Alaska Airlines reported adjusted EPS of $1.47, a 33% increase compared to 2013. Alaska has exceeded analyst estimates for five consecutive quarters.
Despite having the highest fuel cost per gallon compared to its peers, Alaska’s profitability was supported by lower taxes and non-operating costs during the quarter.
Alaska Airlines estimates its unit cost excluding fuel to decrease by 2.5% year-over-year in 4Q14 and by 1% in FY14.
During 3Q14, Alaska’s fuel efficiency improved. Measured as available seat miles (or ASM) per fuel gallon, fuel efficiency increased 2.8% year-over-year to 77.3 in 3Q14.
Alaska Airlines recouped ~85% of lost revenue during 3Q14 from its own distribution channels and by generating higher codeshare and interline revenue from other airlines.
Alaska added a new booking class with lower fares to its first class pricing structure, which was introduced in half of Alaska’s markets.
Alaska Airlines’ passenger revenue increased by 6.9% during 3Q14, primarily due to an increase in traffic or revenue passenger miles (or RPM).
During the nine months ending September 30, 2014, Alaska Airlines’ ancillary revenue growth was more than double the growth of passenger revenue.
Alaska’s share price increased to $55.86 on November 18, 2014, ~53% higher than $36.59 in the beginning of the year.
Overall fleet use is expected to increase going forward as vessels will now follow longer-than-traditional routes. This will effectively absorb more tonnage.
Looking ahead, many factors are likely to positively influence the shipping market and the companies that play in it. For example, India’s increasing appetite for coal has caused Capesize and Panamax rates to surge by 94% and 49%, respectively.
With the equity issue now completed, DryShips is now in a position to fully repay the $700 million in convertible notes. This removes some of the risk from investing in DryShips over the next two years.
Orderbooks of Suezmax and Aframax fleets remain at manageable levels, with the majority of new orders due for delivery in the second half of 2016 or later.
DryShips has a large amount of spot market exposure and so is uniquely positioned to take full advantage of the expected recovery in charter rates.