Stock Recommendation Report For Alaska Air Groups
Alaska air group is an airline holding company primarily based in Washington in the United States of America. The company operates under the airline industry and is considered to be among the best companies locally and the other destinations out of the country. Besides, Alaska air group also provides passenger and cargo air transportation services between north and south American countries. Therefore, it is imperative to understand the stock recommendation report for Alaska air groups.
The discounted cash flow valuation is referred to as the method in which a company can estimate the value of an investment on the basis of its future cash flows. Further, the analysis also finds the present value of the expected future cash flow through the use of discounted rate. The determined present value of the expected future cash is then used for evaluating the potential investment. As a result, the discounted cash flow valuation of Alaska air group will be calculated through a two-stage model where different periods of estimate cash flow are needed. The estimates used should be of the next 5 years of cash flows (Bitzan, & Peoples, 2016). Then the growth rate applied will be the average annual growth rate of over the past 5 years that is under a reasonable level which is recorded to be 2.3%. The result will be discounted to the sum of these cash flows which will arrive to the present value estimate. The value determined is 118.43 to the current share price of $66.28 which quite undervalued at about 40% of the total share (Jean, & Lohmann, 2016). In general, it is imperative to indicate that the intrinsic value of Alaska air group is about the price share which illustrates that the company is having a strong financial condition.
The growth opportunities within the industry is considered to be impressive considering the influence of its operations. The presence of the airline group has improved through the services it offers leading to an increased profit. One of the opportunities it has experienced is the level of the expansion it has had over the past years (Cui, & Li, 2015). The competition in the airline industry is considered to be unpredictable and intense with the competitors often looking for any available opportunity to increase their market share. Primarily this has enabled the organization to be among the frontiers by acquiring some of its rivals such as virgin America. This indicates competitive advantage of Alaska airline group to be above its competitors within the industry (Borenstein, & Rose, 2014). The growth opportunity of Alaska airline group is among the best within the industry because of its competitive impacts such as safety records, customer service reputation which has been significant compared to its competitors.
The potential growth and risk status of the company is considered to be dominating the other airlines operating within the industry. The presence of the company is primarily felt through its domestic capacity operations which has been the core market from the customers. The routes served, flight schedules and the interline relationships are some of the services which has impacted the growth of Alaska (Cannon, 2014). Despite the possible rising operating expenses within the company after the acquisition of virgin airline that has posed some element of risk, the overall profitability can still be realized due to its reputation within the industry (Özcan, 2014). The share prices through the analysis has indicated the financial position of the company which supports its activities to be competitive advantage against its rivals.
Bitzan, J., & Peoples, J. (2016). A comparative analysis of cost change for low-cost, full-service, and other carriers in the US airline industry. Research in Transportation Economics, 56, 25-41.
Borenstein, S., & Rose, N. L. (2014). How airline markets work… or do they? Regulatory reform in the airline industry. In Economic Regulation and Its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press.
Cannon, J. N. (2014). Determinants of “sticky costs”: An analysis of cost behavior using United States air transportation industry data. The Accounting Review, 89(5), 1645-1672.
Cui, Q., & Li, Y. (2015). Evaluating energy efficiency for airlines: An application of VFB-DEA. Journal of Air Transport Management, 44, 34-41.
Jean, D. A., & Lohmann, G. (2016). Revisiting the airline business model spectrum: The influence of post global financial crisis and airline mergers in the US (2011− 2013). Research in transportation business & management, 21, 76-83.
Özcan, İ. Ç. (2014). Economic contribution of essential air service flights on small and remote communities. Journal of Air Transport Management, 34, 24-29.