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On Thursday, TD Cowen adjusted its outlook on Alaska Air Group Inc. (NYSE: NYSE:ALK) shares, reducing the price target to $50 from the previous $52 while sustaining a Buy rating on the stock. The adjustment comes ahead of the airline's third-quarter earnings report, anticipated in the latter part of next week, starting October 13, 2024.
The firm's analyst cited updates to quarterly estimates to include the "HA stub period" and modifications to the financial model to present a pro forma view of the airline's performance post-merger. The analysis suggests that the deal may be approximately 30% dilutive to the fiscal year 2025 adjusted earnings per share (EPS) but could become around 7% accretive to the fiscal year 2026 adjusted EPS.
According to the analyst, the long-term synergies from the merger are a driving factor behind the positive outlook, despite the lowered price target. The new target is based on an estimated 4.2 times the projected fiscal year 2025 enterprise value to EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs).
The report underscores the firm's confidence in the airline's long-term potential, even as it acknowledges the near-term financial impacts of the merger. The analyst's expectations are that the integration of the airlines will yield beneficial results beyond the initial adjustment period.
Investors and market watchers are now looking forward to the upcoming earnings release, which will provide further insights into Alaska Air's financial health and the progress of the merger's integration, as well as the company's trajectory toward realizing the anticipated synergies.
In other recent news, Alaska Air Group has been making significant strides in its financial and operational endeavors. The company has launched a $1.5 billion financing initiative backed by its customer loyalty program. The proceeds from this effort are expected to be used for redeeming debts from its merger with Hawaiian Airlines and for general corporate purposes.
The merger with Hawaiian Airlines, a $1.9 billion deal, has been finalized, creating an entity that will continue to operate independently until a single operating certificate from the Federal Aviation Administration is secured. This will enable the airlines to function as a single carrier, offering nearly 1,500 daily flights with a fleet of 350 aircraft and employing over 33,000 individuals.
Furthermore, TD Cowen has maintained a Buy rating on Alaska Air's stock and raised the price target to $52.00, following the company's updated third-quarter 2024 financial guidance. The forecast anticipates earnings per share between $2.15 and $2.25.
In addition, Alaska Air Group reported robust second-quarter results, with a GAAP net income of $220 million and an adjusted net income of $327 million. Lastly, the company has announced new appointments within its cargo division, aiming to strengthen operations post-merger. These are the recent developments in the company.
InvestingPro Insights
To complement TD Cowen's analysis of Alaska Air Group Inc. (NYSE: ALK), InvestingPro data offers additional context for investors. As of the latest available data, Alaska Air's market capitalization stands at $5.57 billion, with a price-to-earnings (P/E) ratio of 24.81. However, the adjusted P/E ratio for the last twelve months as of Q2 2024 is considerably lower at 11.62, suggesting the stock may be more attractively valued than it appears at first glance.
InvestingPro Tips highlight that net income is expected to grow this year, aligning with the analyst's projection of potential accretion to earnings per share by fiscal year 2026. Additionally, the company's PEG ratio of 0.58 indicates that the stock is trading at a low P/E ratio relative to its near-term earnings growth, which could be seen as a positive sign for value investors.
It's worth noting that while Alaska Air has shown strong returns over the last month, with a 23.04% price increase, the RSI suggests the stock may be in overbought territory. This could be important for investors to consider in light of the upcoming earnings report and the ongoing merger integration process.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Alaska Air Group, providing a deeper dive into the company's financial health and market position.
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