Last week, Alaska Air Group, Inc. (ALK )reported mixed third-quarter 2026 earnings wherein the company's earnings beat the Zacks Consensus Estimate while revenues missed the same.
Quarterly earnings of 36 cents per share, excluding certain tax impacts, beat the Zacks Consensus Estimate of 35 cents by 2.9%. The company had reported adjusted earnings of $1.05 per share a year earlier. Higher fuel expenses weighed on profitability despite strong revenue momentum. Operating revenues increased 14.4% year over year to $4.31 billion but missed the consensus mark of $4.31 billion by 0.1%. Revenue per available seat mile or RASM rose 11.7%, supported by strong yields, premium demand and loyalty revenues.
Given this backdrop, the question that naturally arises is: Should investors buy, hold, or sell ALK stock now? A more in-depth analysis is needed to make that determination. Before diving into ALK's investment prospects, let's take a glance at its latest quarterly numbers.
Highlights of ALK's Q3 Earnings
ALK's third-quarter revenue performance reflected improving pricing trends, with September yield increasing approximately 17% year over year. The gains came despite headwinds in Hawaii, investments in strategic growth markets and rapid international expansion.
Passenger revenues increased 13.5% year over year to $3.89 billion. Loyalty program other revenues surged 31.5% year over year to $263 million, while cargo and other revenues advanced 12.7% to $160 million. Premium revenues grew approximately 25% year over year, representing more than 36% of total revenues. Loyalty program cash remuneration increased 21% to $721 million, while managed corporate revenues jumped 30% year over year. Diversified revenues, representing revenues outside the main cabin, accounted for 54% of the company's total revenues.
Consolidated traffic, measured in revenue passenger miles, remained essentially flat year over year, while capacity increased 2.4%. With capacity growth outpacing traffic, the consolidated load factor declined 2 percentage points to 82.8%.
Total operating expenses increased 16.8% year over year to $4.23 billion, outpacing revenue growth. Aircraft fuel expenses surged 59.5% year over year to $1.21 billion as economic fuel cost climbed 57% to $3.94 per gallon from $2.51. Fuel consumption increased 1.7%.
Wages and benefits rose 5% year over year to $1.29 billion, while landing fees and other rentals increased 9%. Aircraft maintenance expenses climbed 8% year over year, while selling expenses and food and beverage service costs each advanced 10%. Other operating expenses increased 16% year over year, further pressuring profitability. These increases more than offset a decline in special-item costs.
Attractive Valuation Picture of ALK
ALK looks cheap from a valuation standpoint. Considering the forward 12-month price-to-sales ratio (P/S-F12M), ALK is trading at a discount compared to the industry.
The stock has a forward 12-month P/S-F12M of 0.23X compared with 0.47X for the industry over the past five years. The company's P/S-F12M ratio is also below the median level of 0.47X over the past five years. These factors indicate that the stock's valuation is attractive. ALK has a Value Score of B.
ALK P/S Ratio (Forward 12 Months) Vs. Industry
Image Source: Zacks Investment Research
ALK Stock's Price Performance
Shares of ALK stock have plunged 28.7% so far this year compared with the Zacks Airline industry's 14% loss, as well as that of other industry players, Southwest Airlines Co. (LUV and American Airlines (AAL ),within the same time frame.
ALK Stock's YTD Price Comparison
Image Source: Zacks Investment Research
What Do Earnings Estimates Say for ALK?
The negative sentiment surrounding ALK stock is evident from the fact that the Zacks Consensus Estimate for the fourth quarter of 2026 earnings has been revised downward in the past 60 days. The consensus mark for 2026 and 2027 earnings has also been projected downward in the past 60 days.
The unfavorable estimate revisions indicate brokers' lack of confidence in the stock.
Image Source: Zacks Investment Research
Final Thoughts
Elevated fuel prices (all thanks to the ongoing tensions between the United States and Iran) have been weighing on the bottom-line growth of all airline companies, and it is no different for ALK. Higher leverage, heavy fleet investment and uneven cash generation further restrict financial flexibility. The rollout of international routes and premium products adds execution risk before returns are proven. With profitability deteriorating despite better unit revenue and the balance sheet less resilient, we expect downside risks to outweigh the longer-term opportunities. Collectively, the aforesaid factors diminish ALK's appeal as an investment at this juncture.
With these pressures outweighing the benefits of demand resilience and brand loyalty, the stock appears to be a risky bet for investors. The stock's current Zacks Rank #4 (Sell) justifies our analysis.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
