Alaska Air Receives Boeing Compensation, Maintains Strong Financial Outlook: Analyst Issues Buy Rating

In a report released today, Stephen Trent from Citi reiterated a Buy rating on Alaska Air (ALK – Research Report), with a price target of $51.00.

Stephen Trent has given his Buy rating due to a combination of factors which reflect a positive outlook for Alaska Air. The recent announcement that Boeing has compensated Alaska Air with $160 million for the Flight #1282 incident and 737 MAX9 groundings is significant. This payment covers revenue losses, operational disruptions, and fleet restoration costs. While this compensation was initially expected to boost earnings, Alaska Air’s management has instead chosen to account for it as a reduction in aircraft assets, aligning with GAAP industry standards. This adjustment led to a revision in the first quarter earnings per share (EPS) guidance, but the underlying financial health of the company remains strong, as evidenced by the adjusted loss per share being narrower than the impact of the accounting treatment for the grounding.

Furthermore, the incident has broader implications in the industry, with the potential for similar compensation to be granted to other affected carriers like United Airlines and Copa Airlines. Trent’s analysis suggests that the financial rectification from Boeing is a positive development, and the airline’s prudent accounting decision is in line with industry standards, which may instill confidence among investors. In addition, the forecasted share price return of 21.8% indicates a robust potential for appreciation, supporting the Buy rating. The outlook for Alaska Air is bolstered by these factors, justifying Trent’s optimistic recommendation for the stock.

Trent covers the Industrials sector, focusing on stocks such as JetBlue Airways, Spirit Airlines, and American Airlines. According to TipRanks, Trent has an average return of 14.3% and a 56.05% success rate on recommended stocks.

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Alaska Air (ALK) Company Description:

Alaska Air Group, Inc. is a holding company, which through its subsidiaries, Alaska Airlines, Inc. and Horizon Air Industries, Inc., engages in the provision of air transportation services. It operates through three segments: Alaska Mainline, Alaska Regional and Horizon. The Alaska Mainline segment includes flying Boeing 737 jets and all associated revenues and costs. The Alaska Regional segment records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective Capacity Purchase Agreements. The Horizon segment operates turboprop Q400 aircraft. The company was founded in 1985 and is headquartered in Seattle, WA.