Last month, Alaska Air Group ALK released impressive fourth-quarter 2024 results. The top and bottom lines beat expectations and rose from the corresponding quarter of 2023. Apart from upbeat air travel demand, results were aided by the inclusion of the results of Hawaiian Holdings acquired in September 2024.

See the Zacks Earnings Calendar to stay ahead of market-making news.

The company’s upbeat guidance also pleased investors, resulting in the stock moving north since the earnings release. Shares of this Seattle, WA-based carrier have gained 12.1% since the earnings announcement. The double-digit gain naturally gives rise to the question of whether ALK is still worth buying at the current level or is it time to lock in profits. Let’s explore.

Highlights of ALK’s Q4 Earnings

Alaska Air’s fourth-quarter 2024 earnings per share of 97 cents outpaced the Zacks Consensus Estimate of 47 cents and skyrocketed more than 100% on a year-over-year basis. The bottom line benefited from solid revenue growth, as well as cost and operational performance throughout the quarter.

Driven by sustained leisure demand and an uptick in corporate travel demand, the company reported not only better-than-expected revenues but also a highly impressive 38.4% year-over-year improvement.  Corporate revenues increased 8% during the quarter. During the quarter, ALK saw strong demand for its premium cabins. First and Premium Class revenues were up 10% and 11% year-over-year, respectively.

ALK’s guidance was also impressive, with the same being compared to the prior-year proforma results as if the Alaska and Hawaiian merger occurred on Jan. 1, 2023. Driven by strong advanced bookings, unit revenues for the first quarter of 2025 are expected to grow year over year in high single digits and capacity is anticipated to grow in the 2.5-3.5% band. ALK expects earnings per share of more than $5.75 in 2025 on capacity growth in the 2-3% range. It expects to generate positive free cash flow this year.

Amid stellar fourth-quarter 2024 results and upbeat EPS view for 2025, analysts are seemingly turning optimistic on the stock and upwardly revising annual earnings estimates.

Image Source: Zacks Investment Research

Alaska Air's Fleet Upgrade Efforts Are Impressive

The inclusion of modern planes in its fleet and the retirement of the old ones align with its environmentally friendly approach. The new inclusions, apart from having all basic amenities, result in an improvement in fuel efficiency. Latest-generation aircraft require up to 30% less fuel than the old ones and emit correspondingly less carbon dioxide.

The completion of the acquisition of Hawaiian Holdings has boosted Alaska Air's fleet size to 365 narrow and wide-body planes. The company expects to receive approximately 14 737 MAX aircraft and three 787 aircraft from Boeing BA this year.

ALK’s Buyback Program Lifts Confidence

Investor-friendly initiatives of the company add to the stock’s appeal. ALK’s management resumed share buybacks in 2023. The restrictions, under the CARES Act, prohibited airlines from paying dividends or buying back shares till Sept. 30, 2022.

In the fourth quarter of 2024 and full-year 2024, ALK repurchased shares worth $248 million and $312 million, respectively. Following the repurchases, ALK has successfully reduced its outstanding share count to 123 million shares, resulting in a share count that is now on par with 2019 levels. The aggressive approach toward share buybacks in the final quarter of 2024 resulted in the materialization of the $1 billion repurchase plan cleared by the board of directors in August 2015. The company started executing the new $1 billion share repurchase program. It aims to fully exhaust the new program within the next four years.

ALK Stock is Undervalued

At its current levels, ALK stock looks highly attractive from a valuation standpoint. With a forward price-to-sales (P/S) ratio of 0.65, ALK trades at a significant discount to industry levels as well as fellow airline operator, Delta Air Lines DAL. DAL is currently trading at a forward sales multiple of 0.69.

Image Source: Zacks Investment Research

This bargain valuation, combined with strong earnings growth, makes ALK an appealing pick for value investors. ALK has a Value Score of A.

ALK Stock is a Buy Now

Despite being hurt by high labor costs (expenses on wages and benefits are up 18% in 2024), we think ALK is well-positioned to dodge the challenge.  Upbeat air travel demand and shareholder-friendly initiatives are supporting growth. ALK’s valuation adds to the layer of positives. The Wall Street average target price of $85.57 for ALK stock suggests an upside of over 13% from current levels.

With a mix of value, growth potential and resilience, ALK stock is a compelling addition to any portfolio. The stock sports a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Boeing Company (BA) : Free Stock Analysis Report

Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research