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1、 North America Equity Research 29 January 2020 Equity Ratings and Price Targets Mkt CapRatingPrice Target CompanyTicker mn Price CurPrevCurEnd Date PrevEnd Date Alaska Air Group Inc ALK US8 143 0265 54Nn c76 00Dec 20n cn c American AirlinesAAL US11 719 2326 90OWn c42 00Dec 2043 00n c Delta Air Lines
2、 Inc DAL US37 016 8357 48OWn c78 00Dec 20n cn c JetBlue Airways Corp JBLU US5 835 7320 27OWn c24 00Dec 20n cn c Southwest Airlines Co LUV US30 240 0057 60UWn c56 00Dec 2054 00n c Spirit AirlinesSAVE US2 906 3142 40OWn c51 00Dec 20n cn c United Airlines Holdings IncUAL US19 524 4777 05OWn c123 00Dec
3、20n cn c Source Company data Bloomberg J P Morgan estimates n c no change All prices as of 28 Jan 20 US Airlines 4Q Wrap Additional Wuhan Thoughts Airlines ALK US Year end Dec FY18AFY19AFY20E Prev FY20E Curr FY21EFY22E Revenue mn 8 2648 7819 2459 2109 854 Adj EBITDAR mn 1 5101 8552 0321 9752 147 EBI
4、TDAR margin 18 3 21 1 22 0 21 4 21 8 Adj net income mn 554798908877979 Adj EPS 4 476 437 397 138 05 BBG EPS 4 406 38 7 017 537 86 Reported EPS 4 476 437 397 138 05 DPS 1 281 371 471 470 00 Dividend yield 2 0 2 1 2 2 2 2 0 0 Adj P E 14 710 28 99 28 1 Source Company data Bloomberg J P Morgan estimates
5、 Investment Thesis Valuation and Risks Alaska Air Group Inc Neutral Price Target 76 00 Investment Thesis While the Virgin acquisition was ultimately appropriate given Alaska s scale and ambition to become a national carrier the integration of a lower margin franchise combined with an ultra competiti
6、ve set of markets in California has resulted in more financial headwinds than we had previously estimated That said we are beginning to witness competitive easing in overlap markets at Alaska s San Francisco hub and competitive capacity trends in Seattle overlap markets have also been improvinsg Fur
7、thermore Transcon pricing has firmed from a troubling low identified in March to levels that we no longer believe will prove destructive to Alaska RASM Finally Southwest s MAX related capacity neutering is anticipated to pressure unsold capacity at that franchise in turn potentially leaving Alaska i
8、n an advantageous position to exploit last minute corporate demand However following the recent surge in ALK shares we believe the time to take profits has arrived as evidenced by the paucity of forecastupside potential relative to our 76 price target Valuation Our Dec 2020 price target of 76 00 is
9、predicated on our company specific forward P E multiple assumption We arrive at our price target for Alaska by applying a 9 5xP E multiple to our 2021EPS estimate For context we utilize a higher multiple for Southwest 10 0 x and a lower multiple for Spirit 9 0 x and JetBlue 8 0 x Stand alone Alaska
10、pre Virgin typically traded at a premium to the rest of the group but the market no longer assigns such a premium due to the complications of integration risk as well as lower aggregate financial output of the combined company in our view ALK shares have experienced a 3x P E valuation compression me
11、asured on consensus NTMestimates since its autumn 2018 peak mostly a result of industry wide revenue deceleration fears on account of cheaper fuel as well as continued albeit improving pressure in its Virgin acquired markets in our view Risks to Rating and Price Target To the downside If ALK expands
12、 capacity growth faster than expected in 2020 our estimates and rating may be lowered if the idiosyncratic revenue initiatives do not 7 North America Equity Research 29 January 2020 Jamie Baker 1 212 622 6713 jamie baker materialize or are delayed in timing we may lower our estimates if the company
13、is unable to bolster the loyalty of high value travelers acquired in the Virgin transaction we believe revenue forecasts could become impaired To the upside If competitive capacity trends in California transcontinental markets emerge smaller than expected we may revise our views on Alaska If technol
14、ogy levered spending particularly in key Seattle and San Francisco markets emerges stronger than expected and Alaska s corporate share improves we may become more bullish on ALK shares 8 North America Equity Research 29 January 2020 Jamie Baker 1 212 622 6713 jamie baker American Airlines Overweight
15、 Company Data Shares O S mn 436 52 week range 37 23 24 23 Market cap mn 11 719 23 Market cap mn 11 719 23 Exchange rate 1 00 Free float 88 8 3M Avg daily vol mn 7 64 3M Avg daily val mn 216 9 Volatility 90 Day 34 Index SAAL US Year end Dec FY18AFY19AFY20E Prev FY20E Curr FY21E Prev FY21E Curr FY22E
16、Revenue mn 44 54145 76847 95047 99150 89550 333 Adj EBITDAR mn 6 5537 0127 8467 3778 2398 006 EBITDAR margin 14 7 15 3 16 4 15 4 16 2 15 9 Adj net income mn 2 1182 1792 4712 1752 7082 604 Adj EPS 4 554 905 715 066 456 35 BBG EPS 4 514 90 5 10 5 786 46 Reported EPS 4 554 905 715 066 456 35 DPS Dividend yield Adj P E 5 95 54 75 34 24 2 Source Company data Bloomberg J P Morgan estimates Investment Thesis Valuation and Risks New American Group Overweight Price Target 42 00 Investment Thesis Despite
