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Analysts Lower Target Price on Alaska Air after Q1 Outlook Cut


Mar. 12 2019, Published 8:15 a.m. ET

Analysts cut target price

Analysts have been lowering their target price on Alaska Air Group (ALK) since the company slashed its first-quarter unit revenue outlook on March 5. After its downbeat guidance, Michael Derchin of Imperial Capital lowered his rating on the stock to “in-line” from “outperform” and cut the target price to $61 from $90.

The analyst said increasing fuel costs, lower transcontinental fares, and competitive pressures in Hawaii due to the beginning of Southwest Airlines’ (LUV) operations may weigh on Alaska Air’s pre-tax margin next year. Derchin now expects its 2020 pre-tax margin to come in at 12%, which is much lower than the 13%–15% he anticipated earlier.

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Buckingham Research also lowered its target price on the stock to $80 from $88. However, the research firm has maintained its “buy” rating on Alaska Air. Most analysts polled by Reuters still maintain a “buy” recommendation on Alaska Air. Among the 17 analysts covering Alaska Air stock, 65% recommended a “strong buy” or “buy,” while the remaining 35% recommended a “hold” rating. However, the stock’s consensus target price has fallen in the past 30 days. Currently, the consensus target price on Alaska Air is $77.68, which is lower than the $78.46 it was at 30 days ago.

Alaska Air lowered Q1 outlook

In a regulatory filing, Alaska Air on March 5 stated that business disruptions due to winter storms and weak pricing would hurt its overall first-quarter performance. The company now projects its unit revenue to grow in the range of 1%–2%, lower than the 2.5%–4.5% forecasted earlier. In absolute terms, the key revenue metric is anticipated to come within 11.97–12.07 cents, down from the 12.15–12.35 cents expected previously.

Alaska Air noted that its close-in pricing has remained below its earlier expectations, mostly in trans-continental flights from California. Additionally, the company revealed that the Pacific Northwest winter storms have directly impacted its first-quarter revenues by $15 million, which is equivalent to a 20 basis-point impact on unit revenues.

Some other major US air carriers (IYT) also updated their first-quarter outlook last week. Delta Air Lines (DAL) and United Airlines (UAL) reaffirmed their guidance and said they are on track to achieve their financial targets. However, JetBlue (JBLU) expects its unit revenues to decline in the range of 1.5%–3.4%, higher than the 1% decline it forecasted earlier.


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