Deutsche Bank Upgrades Alaska Air To Buy Following Q4 Results

• Alaska Air Group, Inc. (NYSE: ALK) shares have appreciated 7.09 percent over the past one year, to a high of $86.33 on December 7.
• Michael Linenberg of Deutsche Bank has upgraded the rating on the company from Hold to Buy, while raising the price target from $84 to $86.
• Following record results through 2015, Linenberg believes that the company is on track to deliver another year of robust EPS growth, although the stock does not reflect this potential.

Analyst Michael Linenberg believes that Alaska Air would deliver robust EPS growth through 2016, driven by “launch of Premium Class seating, an enhanced credit card agreement, moderating capacity growth, lower fuel prices, and reduced share count.”

However, the company’s consolidated capacity growth is expected to peak in the March quarter at 13.5 percent, and then moderate through the rest of the year, with growth for the full year expected at about 8 percent.

“Competitive capacity in Alaska’s core markets is forecast to be up 12-13 percent for 1H 2016 before slowing to less than 10 percent, in our estimation, in the back half of the year,” Linenberg stated.

On the other hand, moderate capacity growth in combination with the improved credit card program are expected to offset PRASM/RASM pressures that Alaska Air witnessed through 2015.

The EPS estimate for 2016 has been raised from $7.00 to $7.15 to reflect lower fuel price assumptions.