Alaska Airlines (ALK) currently represents a great value for investors. While the share trades for around $75.59, the true value of the shares, based on projected future free cash flows to equity, is over $130, as shown below:
Unlike many airlines, Alaska Airlines is a growing airline, actively expanding into a number of new routes. Alaska Airlines is also making heavy investments in their infrastructure, including plans to spend approximately $3 billion dollars on Capital Expenditures between 2017 and 2019. Passenger revenue has been steadily growing at Alaska Airlines, and rose at approximately 6.5% per year over the last five years. This growth appears poised to continue. Net margins have been between 6 and 15% in the last five years, largely dictated by fuel prices: When fuel prices are low, margins are much higher. Accordingly, the value of the company depends, in part, on assumptions about future fuel prices, which can be unpredictable. However, the margin of safety provided by Alaska Airlines’ heavily depressed stock price makes this stock a strong BUY, and provides a great deal of safety to investors, even in the face of potential fuel price increases and associated drops in operating and net margins.