Why Alaska Air Group Stock Crashed on Wednesday

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What happened

Shares of Alaska Air Group (NYSE: ALK) collapsed on Wednesday, falling as much as 14.2% after the airline reported third-quarter earnings. Alaska Air's profit missed analyst estimates  by only a penny, coming in at $2.24 per share, adjusted for one-time items, versus analyst expectations of $2.25. In terms of sales, the company reported $2.12 billion in revenue, about $50 million short of expectations.

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After recovering slightly, Alaska Air shares closed the day down 13.2%.

So what

So much for the expectations. Viewed objectively, it wasn't a terrible quarter for Alaska Air. Earnings  for the quarter came to $2.14 per share, up 3% from last year's third quarter, and helped by extra profit that came with Alaska's recently acquisition of Virgin America. Sales for the quarter surged 35% -- getting an even bigger lift from the Virgin America acquisition.

Now what

Speaking of which, Alaska air CEO Brad Tilden advised that the company is "roughly ... halfway" through its integration of Virgin America. As that integration progresses, further operational improvements may follow -- but management declined to provide any specific guidance in this regard for fourth-quarter expectations.

As for the analysts who follow Alaska Air stock, their expectations are as follows:

  • $1.46 in profit on $2 billion in revenues for the fourth quarter of 2017.
  • $7.28 profit on $7.97 billion in revenue for full year 2017.

Working off those latter numbers, it appears that Alaska Air stock is now selling for approximately 9.5 times current-year earnings after the sell-off. Suffice it to say that if you have any expectation that Alaska Air might pull out of this present slump, today's post-sell-off valuation has to look very attractive indeed.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.