Why Alaska Air Group, Inc. Is Both a Top-Rated Airline and a Substantial Growth Investment

Alaska Airlines Group Inc. has been a great investment for stockholders but how does its financial metrics, estimated earnings, valuation, and company operations forecast for future growth?

May 21, 2014 at 6:00PM

As a growth stock, Alaska Air Group, (NYSE:ALK) provides great opportunity for investors as analysts expect it to outperform the market by a considerable amount. Estimates have the stock returning substantial value to stockholders and consumers have marked the airline as one of the top companies in the airline industry based on recent reports.

Exceptional earnings outlook and strong financial metrics
In an industry where stocks have already experienced a 25% investment return in the first quarter of 2014, investors can expect Alaska Air to continue with this trend. Its's expected to return 28.7% earnings-per-share growth for 2014 and has been profiled with an estimated long-term growth of 18%.

With forecasts like that it's hard not to get excited by the potential return that the stock presents. However, it's important to keep in mind the financial metrics that back the potential growth the stock withholds. Most recent SEC filings show strong financial numbers that include a low debt-to-equity ratio of 0.34, a 22.92% return-on-equity, and a current ratio of 1.10.

So not only does the company present great potential growth, it's not risking this growth at the hands of the stockholders because it's providing great financial return as well as backing its liabilities with more than enough equity and assets.

Undervaluation in comparison to the industry
Currently the stock has a P/E ratio of 13.7, versus an industry average of 14.8, and a PEG ratio of 0.7, versus an industry average of 0.8. This comes as a positive sign for considering Alaska Air as an investment at this point because not only is the stock considered undervalued versus the industry based on its P/E ratio, its PEG ratio suggests that the stock expects to return substantial growth at a fairly reasonable value in relation to its price.

A top rated airline by flyers
The airline is managing to return substantial value and growth as a stock, but how is it functioning as a business?

Alaska Air recently ranked as the top airline in J.D Power's survey of over 11,000 flyers for quality and usability of its frequent flier program among North American airlines. This survey was weighed by fees, reservations, check-ins, aircraft, boarding and baggage, and flight crew. Notably, the company also leads major U.S. airlines in on-time performance.

What this means for the company as a business is that it's functioning at a level that consumers find more than acceptable. This should help it retain its current customer base as well as help it attract a larger market share. This in turn will hopefully continue to provide a steady and increasing flow of future revenue which could suggest the reason for the 4.1% increase in traffic in the first quarter of 2014.

In 2013, Alaska Air also ranked number one in fuel efficiency among U.S. airlines by the International Council on Clean Transportation. In an industry where jet fuel is expected to account for $213 billion of costs, it can be reassuring to know that this airline does its best to minimize the cost that cuts the most into the industry's profit.

Overlying picture
The Alaska Air Group seems to function both well as an investment and as a business, which should certainly make it attractive for potential stockholders. However, operating in an industry that is highly competitive you'll have to consider whether it can retain its share of the market, especially if it's forced to raise airfare in the future. Either way, between being ranked as a top performing U.S. airline and planning throughout 2014 to distribute at least $350 million to shareholders through dividends and share repurchases, the company is definitely treating its customers and investors at a very considerate standard.

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Jake Gilfix has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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