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Alaska Air Group (ALK) Q4 Earnings: Another Beat in Store?

Zacks Equity Research
Updated

Alaska Air Group ALK is expected to unveil its fourth-quarter 2016 results on Jan 19.

In the third quarter, the carrier had delivered a positive earnings surprise of 7.32%. The results were aided by low fuel costs. Quarterly earnings also increased 2% year over year. Quarterly revenues of $1.57 billion inched up 3% year over year and also surpassed the Zacks Consensus Estimate of $1.55 billion. Passenger revenues, which improved 2% year over year, accounted for the bulk of the top line.

In fact, the company has an impressive history with respect to earnings per share. It surpassed the Zacks Consensus Estimate in each of the last four quarters with an average beat of 3.36%. The strong earnings performance is reflected in the carrier’s stock price movement. In the last one year, the stock returned 37.23%, comfortably outperforming the Transportation- Airline industry’s gain of 26% in the period.

We expect Alaska Air Group to keep up the impressive trend and top the Zacks Consensus Estimate for the fourth quarter as well. Our quantitative model too shows that the company is likely to beat earnings because it has the perfect combination of two key ingredients.

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Zacks ESP: The Earnings ESP for Alaska Air Group is +3.79% with the Most Accurate estimate exceeding the Zacks Consensus Estimate of $1.32 per share by 5 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Alaska Air Group carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered while going into an earnings announcement.

The combination of Alaska Air Group’s favorable Zacks Rank and positive ESP makes us reasonably confident of earnings beat.

Alaska Air Group, Inc. Price and EPS Surprise

 

Alaska Air Group, Inc. Price and EPS Surprise | Alaska Air Group, Inc. Quote

What is Driving the Better-than-Expected Earnings?

Alaska Air Group has become the fifth-largest U.S. airline following the completion of the acquisition of Virgin America. The buyout helped Alaska Air Group to significantly expand its presence, particularly in the West Coast.

Although the acquisition (completed only on Dec 14, 2016) will have limited impact on fourth-quarter results, investors will await an update on the integration process on the fourth quarter conference call.

We are also impressed by the company’s remarkable traffic results in December. The company’s traffic growth can be attributed to new routes and focus on enhancing customer service. In addition, Alaska Air’s efforts to reward shareholders are commendable. The carrier, which started paying dividends in mid-2013,  announced a 38% hike in its quarterly dividend to $0.275 per share last year. We are positive on the resumption of commercial flights to Havana by the carrier and believe that the move will benefit the company's top line immensely as Havana is a favorite tourist spot.

Other Stocks to Consider

Apart from Alaska Air Group, investors who are interested in the transportation space may also consider the following stocks. This is because our model shows that these companies too possess the right combination of elements to post an earnings beat this quarter.

Canadian National Railway Company CNI has an Earnings ESP of +4.44% and a Zacks Rank #3. It will release its fourth-quarter results on Jan 24, and has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 5.6%.

Hawaiian Holdings, Inc.HA has an Earnings ESP of +1.60% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hawaiian Holdings, which will release its fourth-quarter results on Jan 24, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 4.58%.

JetBlue Airways Corporation JBLU has an Earnings ESP of +2.08% and a Zacks Rank #3. It will release its fourth-quarter results on Jan 26, and has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 6.5%.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?

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JetBlue Airways Corporation (JBLU): Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
Canadian National Railway Company (CNI): Free Stock Analysis Report
 
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Zacks Investment Research