NEW DIRECTIONAL CALL PLAYS
Alaska Air Group - ALK - close: 66.16 change: +0.72
Stop Loss: 62.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on March -- at $---.--
Listed on March 03, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
The collapse in the price of crude oil has been a huge windfall for the airline industry. As a result airline stocks have soared from the market's October 2014 lows. That's because air fares remain near 11-year highs while fuel prices have dropped to five-year lows, boosting profit margins. Today analysts are expecting jet fuel to average less than $2.00 a gallon in Q1 2015. According to the U.S. Transportation Department jet fuel dipped this low back in December and before that it hasn't been this low since 2009.
ALK is a regional airline. The company is more than 80 years old and currently has a fleet of more than 180 planes. According to the company,
"Alaska Airlines, a subsidiary of Alaska Air Group (ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked 'Highest in Customer Satisfaction Among Traditional Carriers' in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the J.D. Power 2014 Airline Loyalty/Rewards Program Satisfaction Report."
ALK has shown consistent earnings growth and beat Wall Street's EPS estimate the last four quarters in a row. Their most recent earnings report was January 22nd. ALK reported Q4 earnings of $0.94 a share. That's a +70% increase from a year ago thanks to a -32% drop in fuel prices. Management has also cut non-fuel expenses. Meanwhile ALK's traffic, measured in revenue passenger miles, was up +9.5%. ALK's full-year 2014 results saw passenger revenues rise +7%. They reported a record income of $571 million (+49%). They also saw a record full-year adjusted pretax margin of 17.2% versus 12.4% in 2013.
The company has decided to return a lot of that money back to shareholders and boosted their quarterly cash dividend by +60% to $0.20 a share.
After such positive results several analysts raised their price target on ALK's stock (into the $71-85 range).
Crude oil prices remain a hot topic on Wall Street. Oil will likely see another drop to new lows thanks to vanishing storage in the U.S. Currently oil inventories are at 80-year highs. There is a growing chance that we could actually run out of storage. You know what happens where there is too much supply - prices normally fall.
Airline stocks got ahead of themselves back in January and most of the group experienced a pullback last month. It looks like the correction is over. Traders are back to buying the dips in ALK.
Technically shares have found support at the rising 50-dma. The breakout past $65.00 this week looks bullish.
A move above $67.00 would generate a new P&F buy signal. Tonight we are suggesting a trigger to buy ALK calls at $66.35.
Trigger @ $66.35
- Suggested Positions -
Buy the APR $70 CALL (ALK150417C70) current ask $1.45
Option Format: symbol-year-month-day-call-strike