Option Trade 
Alaska Air Group, Inc. (NYSE:ALK) Calls 
Tuesday, 18th October, 2016

** OPTION TRADE: Buy the ALK JAN 20 2017 75.000 call at approximately $3.00. Place a pre-determined sell at $6.00.  

Note: No protective stop losses added -- but if you wish to do so make it $1.20.            

by Ian Harvey

October 18, 2016

Alaska Air Group, Inc. (NYSE:ALK), the parent company of Alaska Airlines, is scheduled to report third-quarter 2016 results on Oct 20, before the market opens. The consensus calls for earnings of $2.04, down from $2.16 during the same period last year.

Last quarter, the company recorded a positive earnings surprise of 1.92%. Moreover, Alaska Air beat estimates in each of the last four quarters with the average earnings surprise at 2.50%.

Alaska Air sold off at the start of the summer months as oil prices improved, but the stock has regained its footing, and has trended higher over the last couple of months, and could build on its recent gains if the company is able to post solid third-quarter results.

The consensus is for earnings of $2.04, but the street has a slightly higher whisper number of $2.07, suggesting a decent chance that the company will post better than expected results. Analysts appear to expect a strong quarter.

The stock has a very low P/E of just 10, and earnings are forecast to rise 8.3% this year, so there is reason to expect the stock to move higher.

The stock has fallen 10.0% on the year.

Alaska Air Group has a market capitalization of $8.86 billion, a P/E ratio of 9.96 and a beta of 0.89. Alaska Air Group has a 52-week low of $54.51 and a 52-week high of $87.17. The stock’s 50 day moving average price is $68.03 and its 200 day moving average price is $67.61.

Why Alaska Air?

Alaska is operating well as an independent carrier. Traffic jumped 7.4% on a 4.2% increase in capacity last month, and is now up 10% for the year. August traffic improved 9% on a 10.3% jump in capacity. The trend on load factor also reversed as Alaska filled 84.1% of available seats, a 2.5% gain over last September's performance. More than 90% of the carrier's flights arrived on time.

More impressive is that it's posting these sorts of results despite intensifying competition. Delta Air Lines, in particular, has made Alaska Air's home base of Seattle-Tacoma Airport -- known as SEA-TAC -- a new hub, with routes stretching across the Western U.S. and into the Pacific. Buying Virgin America as it ramps up flights to Hawaii from the West Coast could help it defend against Delta and others.

Analyst Input

Buckingham Research upgraded shares of Alaska Air Group Inc. from a neutral rating to a buy rating in a research report published on Thursday morning. Buckingham Research currently has $84.00 price objective on the stock.

Also, several other equities research analysts have recently commented on the company.

  • Cowen and Company reaffirmed a buy rating on shares of Alaska Air Group in a research note on Wednesday, June 15th.
  • Zacks Investment Research raised Alaska Air Group from a sell rating to a hold rating in a research note on Tuesday, August 16th.
  • Morgan Stanley reissued an overweight rating on shares of Alaska Air Group in a research note on Wednesday, June 15th.
  • Finally, Credit Suisse Group AG raised Alaska Air Group from a neutral rating to an outperform rating and increased their price objective for the company from $70.00 to $85.00 in a research note on Monday, July 25th.

Five research analysts have rated the stock with a hold rating, ten have assigned a buy rating and one has issued a strong buy rating to the company’s stock. The stock presently has a consensus rating of Buy and a consensus price target of $86.30.

Harvey’s Options Volatility Indicator

Conclusion

Expect a decent quarter, and for the stock to trend higher, but oil prices will be the primary driver of the stock in the months ahead.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the ALK JAN 20 2017 75.000 call at approximately $3.00. Place a pre-determined sell at $6.00. Note:

No protective stop losses added -- but if you wish to do so make it $1.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.

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