Investors in Alaska Air Group, Inc. (NYSE:ALK) had a good week, as its shares rose 5.6% to close at US$41.57 following the release of its quarterly results. The results don't look great, especially considering that statutory losses grew 32% toUS$3.49 per share. Revenues of US$701m did beat expectations by 2.2%, but it looks like a bit of a cold comfort. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the 13 analysts covering Alaska Air Group are now predicting revenues of US$5.88b in 2021. If met, this would reflect a notable 18% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Alaska Air Group forecast to report a statutory profit of US$1.18 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$6.10b and earnings per share (EPS) of US$2.02 in 2021. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a pretty serious reduction to earnings per share estimates.
Despite the cuts to forecast earnings, there was no real change to the US$50.43 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Alaska Air Group analyst has a price target of US$64.00 per share, while the most pessimistic values it at US$40.00. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Alaska Air Group's growth to accelerate, with the forecast 18% growth ranking favourably alongside historical growth of 6.7% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 26% per year. It seems obvious that, while the future growth outlook is brighter than the recent past, Alaska Air Group is expected to grow slower than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Alaska Air Group. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target held steady at US$50.43, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Alaska Air Group going out to 2023, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Alaska Air Group that you need to be mindful of.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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