Options Trade – Alaska Air Group, Inc. (NYSE:ALK) Calls 
Wednesday, January 22, 2014

Fly High With An Options Call On Alaska Air!

**OPTIONS TRADE: Buy the ALK Apr 2014 85.000 call (ALK140419C00085000) at or under $2.60, good for the day. Place a protective stop limit at $1.05 and a pre-determined sell at $4.20.

by Ian Harvey

January 22, 2014

Introduction

Alaska Air Group, Inc. (NYSE: ALK) has been one of the stronger airlines in recent history, with the stock gaining 52.3% since the end of June, and 69.6% over the last twelve months. The company reports fourth quarter results before the market opens on January 24, with analysts looking for earnings of $1.01 per share.

Also, airlines' profits in the short term will likely glide higher on lower crude oil prices suppressed by growing oil production in the US. In its short-term energy outlook released January 7, the US Energy Information Administration (EIA) forecasts average Brent crude oil prices to fall steadily from $109 per barrel in 2013 to around $102 per barrel in 2015.

Company Details

Alaska Air Group, Inc. is a holding company of Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon), which together with its partner regional airlines; serve 95 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico.

The Company operates two airlines: Alaska Airlines and Horizon Air. The Company operates in three segments: Alaska Mainline, Alaska Regional and Horizon. Alaska Mainline is the Boeing 737 part of Alaska's business. Alaska Regional is Alaska's shorter distance network. Horizon operates regional aircraft.

During the year ended December 31, 2012, the Company carried 26 million passengers.

Alaska operates a fleet of passenger jets (mainline) and contracts with Horizon, SkyWest Airlines, Inc. (SkyWest) and Peninsula Airways, Inc. (PenAir) for regional capacity under, which Alaska receives all passenger revenue from those flights. Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska.

Key Statistics for ALK

Current P/E Ratio (ttm) 16.0496
Estimated P/E(12/2013) 14.8893
Relative P/E vs. SPX 0.9312
Earnings Per Share (USD) (ttm) 4.9883
Est. EPS (USD) (12/2013) 5.3770
Est. PEG Ratio 1.0047
Market Cap (M USD) 5,567.13
Shares Outstanding (M) 69.54
30 Day Average Volume 855,041
Price/Book (mrq) 3.0945
Price/Sale (ttm) 1.1089
Dividend Indicated Gross Yield 1.00%
Cash Dividend (USD) 0.2000
Dividend Ex-Date 11/15/2013
5 Year Dividend Growth -
Next Earnings Announcement 01/23/2014

Technical Outlook

Shares of Alaska Air Group closed yesterday trading at $80.10, up 1.97%. Alaska Air Group has a 52 week low of $45.45 and a 52 week high of $81.18. The stock’s 50-day moving average is $74.92 and its 200-day moving average is $64.21.

Technical indicators for ALK are bullish and the stock is in a strong upward trend. The stock has support above $76.50 and resistance below $80.20.

Earnings

Alaska Air Group last issued its quarterly earnings data on Thursday, October 24th. The company reported $2.21 earnings per share for the quarter, beating the analysts’ consensus estimate of $1.98 by $0.23. The company had revenue of $1.56 billion for the quarter, compared to the consensus estimate of $1.34 billion.

During the same quarter last year, the company posted $2.09 earnings per share. Alaska Air Group’s revenue was up 22.4% compared to the same quarter last year. Analysts expect that Alaska Air Group will post $5.23 EPS for the current fiscal year.

A Good Reputation

The Wall Street Journal reported Alaska, a unit of Seattle-based Alaska Air Group Inc., topped eight other national airlines in seven categories including on-time departures, cancelled flights, extreme delays, bumped passengers, mishandled baggage, customer complaints, and excessive delays.

"Seattle-based Alaska has the benefit of few flights on the East Coast of the U.S., where weather and airport congestion can be punishing. It does, though, face the challenge of sometimes harsh conditions in Alaska," according to the newspaper.

Analysts Opinions

UBS AG started coverage on shares of Alaska Air Group on December 18th, 2014. UBS AG issued a buy rating on the stock.

Also, Alaska Air Group has been the subject of a number of other recent research reports:-

• Analysts at Deutsche Bank downgraded shares of Alaska Air Group from a “hold” rating to a “sell” rating in a research note to investors on Friday, December 6th. They now have a $70.00 price target on the stock.

• Separately, analysts at Imperial Capital raised their price target on shares of Alaska Air Group from $78.00 to $86.00 in a research note to investors on Tuesday, November 19th. They now have an “outperform” rating on the stock.

• Finally, analysts at Bank of America Corp. reiterated a “buy” rating on shares of Alaska Air Group in a research note to investors on Monday, November 18th. They now have a $83.00 price target on the stock, up previously from $75.00.

One research analyst has rated the stock with a sell rating, three have assigned a hold rating and seven have given a buy rating to the company’s stock. Alaska Air Group has a consensus rating of “Buy” and a consensus price target of $75.35.

Analyst Firms Making Recommendations

B OF A M L BARCLAYS CAPITA
COWEN & COMPANY DEUTSCHE BK SEC
J.P. MORGAN MCADAMS WRIGHT
MORGAN STANLEY RAYMOND JAMES

Conclusion

Alaska Air last reported earnings back in October, posting record third quarter earnings of $2.21 per share. Its results came in well above the $2.14 Wall Street expected.

The company has a lot going for it. It obtained the top spot in the U.S. Department of Transportation' listing of on-time air carriers for the twelve months ended August 2013. It is almost the most fuel-efficient airline according to the Council on Clean Transportation. Last quarter's revenues were much higher than expected, at $1.56 billion versus $1.34 billion. The most recent piece of good news came in early January when Alaska Air reported a 6.7% increase in traffic compared to the same month the previous year.

Looking forward, ALK is expected to grow earnings by 19% during 2014. There are a lot of reasons to be bullish on the stock, and it is believed that there will be additional share gains ahead.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the ALK Apr 2014 85.000 call (ALK140419C00085000) at or under $2.60, good for the day. Place a protective stop limit at $1.05 and a pre-determined sell at $4.20.



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Options traders win because they are successful.



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