Alaska Hopes New Planes Can Help Lift Sagging Share Price
Since Sept. 24, when shares opened down 13% year to date, they have gained about 9%. The gain generally followed the Sept. 26 announcement that the carrier will buy back $250 million worth of its stock, equivalent to about 10% of its market capitalization, with completion expected by Dec. 31, 2014.
Alaska shares opened the year at $38.21, adjusted for a split. In trading Thursday, shares were down 24 cents to $36.33. A year spent trailing other airlines' shares has been disappointment for Alaska; in 2011 its shares led the industry with a 30% gain.
"Alaska is a company that has focused on having a high return on capital for years and has achieved that for years," said aviation consultant Robert Mann. "This (order) tells me they think they can make even more money with further investment in the fleet."
News of Thursday's order followed Monday's announcement that Alaska will enter into an expanded codeshare deal with Delta (DAL) , under which the carriers will adjust connecting flight schedules at SeaTac Airport and will offer codeshares to more than 50 Alaska markets and more than 60 Delta markets. "It's a case of Delta giving a formal tip of the hat to the guys who make the international operations work" by providing feed, Mann said.
Analysts have generally been recommending Alaska despite its disappointing performance. On Tuesday, Dahlman Rose analyst Helane Becker reiterated a buy rating and a $45 price target and raised her third-quarter estimate to reflect better-than-expected non-fuel unit costs in the carrier's guidance. Becker now estimates third-quarter earnings of $2.11 a share, up from $2. Analysts surveyed by Thomson Reuters have a consensus estimate of $2.04 a share. Becker's full-year estimate is $4.90. Consensus is $4.73.
Becker said the expanded codeshare with Delta is expected to benefit both carriers. Also Tuesday, Maxim Group analyst Ray Neidl wrote in a note that "in an uncertain economy, we still favor the so-called niche carriers" including Alaska and others. "All have good cost structures, operational flexibility and specific niche markets that they are profitably growing," Neidl wrote.
As for the aircraft order, the 50 jets will include 37 Boeing 737 MAX models, which have a new engine variant, and 13 next-generation 737-900s. At list price, before the undisclosed discount, the order is valued at about $5 billion. The 737 MAX is expected to be 13% more fuel efficient than today's most efficient single-aisle aircraft.