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Alaska Air Group, Inc. (ALK): A Fundamental Analysis

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Alaska Air Group, Inc. (NYSE:ALK) has had an outstanding performance this year. The stock has rallied 53% YTD, while the S&P 500 has improved 14%. The airline has also outpaced major airlines such as Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL). Although several investors do not agree with the idea that Alaska Air Group is a good investment, I would like to discuss two press releases that point out the company’s near term growth. For these reasons, a long position may be considered in Alaska Air Group, Inc. (NYSE:ALK).

Alaska Air Group, Inc. (NYSE:ALK)

Fundamental Analysis

Alaska Air Group, Inc. (NYSE:ALK) is trading with a P/E of 15.21 and a forward P/E of 10.19. Its price-to-earnings-to-growth is 1.04. Its balance sheet carries a small amount of debt, with a debt ratio of 0.65, and the company held $1.3 billion in cash as of the end of the last quarter. Further, its return-on-equity of 23% is the highest in the industry. Its solid business model allows the company to operate with a profit margin of 6%. Overall, the stock has doubled in the past 12 months, and I believe it still has room to the upside.

Delta Air Lines, Inc. (NYSE:DAL) is trading with a P/E of 17.77, and a forward P/E of 6.14. Its price-to-earnings-to-growth is 0.66, and the company is operating with a 2.43% profit margin. United Continental Holdings Inc (NYSE:UAL) is trading with a negative P/E and a forward P/E of 6.64. However, its profit margin is -1.86%. Although from a valuation point of view these major carriers could be considered for long positions, their most recent monthly traffic report may indicate a troublesome future.

April Monthly traffic report

The most important press release from Alaska Air Group, Inc. (NYSE:ALK) after the quarterly earnings report was the revised monthly traffic for April. The company reported an outstanding 9.2% increase in traffic on a 9.9 increase in capacity compared to April 2012. The revenue passenger mile (RPM) increased from $1.98 billion in April 2012 to $2.16 billion in April 2013. The available seat miles (ASM) increased from 2.27 billion to $2.49 billion for the same period.

On a year-to-date basis, Alaska Air Group, Inc. (NYSE:ALK) has increased the RPM by 9.4% from $7.62 billion in 2012 to $8.34 billion in 2013.

However, Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL) did not fare as well in April. Delta Air Lines reported a decline of 0.7% in its RPM from $15.65 billion in April 2012 to $15.54 billion in April 2013. However, its regional RPM declined 8.7% from $2.0 billion to $1.84 billion for the same period. In an effort to increase its RPM, the airline increased its ASM by 0.5%, but this effort was fruitless since its load factor declined by 1.0%.

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