Intrinsic value of Alaska Air Group - ALK

Previous Close

$69.72

  Intrinsic Value

$1,295

stock screener

  Rating & Target

str. buy

+999%

Previous close

$69.72

 
Intrinsic value

$1,295

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of ALK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 8.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.95
  40.70
  37.13
  33.92
  31.03
  28.42
  26.08
  23.97
  22.08
  20.37
  18.83
  17.45
  16.20
  15.08
  14.07
  13.17
  12.35
  11.62
  10.95
  10.36
  9.82
  9.34
  8.91
  8.52
  8.16
  7.85
  7.56
  7.31
  7.08
  6.87
  6.68
Revenue, $m
  5,931
  8,345
  11,443
  15,325
  20,079
  25,786
  32,511
  40,305
  49,203
  59,224
  70,376
  82,656
  96,048
  110,535
  126,092
  142,695
  160,318
  178,939
  198,540
  219,106
  240,627
  263,103
  286,535
  310,935
  336,320
  362,714
  390,145
  418,652
  448,275
  479,064
  511,073
Variable operating expenses, $m
 
  6,330
  8,609
  11,463
  14,959
  19,156
  24,102
  29,833
  36,377
  43,746
  51,948
  60,784
  70,633
  81,287
  92,727
  104,937
  117,897
  131,591
  146,005
  161,128
  176,955
  193,483
  210,716
  228,659
  247,327
  266,737
  286,910
  307,873
  329,658
  352,300
  375,839
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  4,582
  6,330
  8,609
  11,463
  14,959
  19,156
  24,102
  29,833
  36,377
  43,746
  51,948
  60,784
  70,633
  81,287
  92,727
  104,937
  117,897
  131,591
  146,005
  161,128
  176,955
  193,483
  210,716
  228,659
  247,327
  266,737
  286,910
  307,873
  329,658
  352,300
  375,839
Operating income, $m
  1,349
  2,015
  2,835
  3,862
  5,120
  6,630
  8,409
  10,472
  12,826
  15,478
  18,429
  21,871
  25,415
  29,248
  33,365
  37,758
  42,421
  47,349
  52,535
  57,977
  63,672
  69,619
  75,820
  82,276
  88,993
  95,977
  103,236
  110,779
  118,617
  126,764
  135,234
EBITDA, $m
  1,712
  2,640
  3,620
  4,848
  6,352
  8,157
  10,285
  12,750
  15,565
  18,735
  22,263
  26,147
  30,384
  34,967
  39,888
  45,140
  50,715
  56,606
  62,807
  69,312
  76,121
  83,231
  90,643
  98,362
  106,392
  114,742
  123,420
  132,437
  141,809
  151,548
  161,674
Interest expense (income), $m
  24
  93
  188
  311
  464
  653
  879
  1,145
  1,454
  1,806
  2,203
  2,644
  3,131
  3,661
  4,235
  4,851
  5,508
  6,206
  6,943
  7,719
  8,534
  9,386
  10,276
  11,204
  12,170
  13,175
  14,220
  15,306
  16,435
  17,608
  18,827
Earnings before tax, $m
  1,345
  1,922
  2,647
  3,551
  4,655
  5,977
  7,531
  9,327
  11,372
  13,672
  16,226
  19,227
  22,285
  25,588
  29,130
  32,908
  36,913
  41,143
  45,592
  50,258
  55,138
  60,233
  65,544
  71,072
  76,823
  82,802
  89,016
  95,472
  102,182
  109,156
  116,407
Tax expense, $m
  531
  519
  715
  959
  1,257
  1,614
  2,033
  2,518
  3,071
  3,691
  4,381
  5,191
  6,017
  6,909
  7,865
  8,885
  9,967
  11,109
  12,310
  13,570
  14,887
  16,263
  17,697
  19,190
  20,742
  22,357
  24,034
  25,778
  27,589
  29,472
  31,430
Net income, $m
  814
  1,403
  1,932
  2,592
  3,398
  4,363
  5,497
  6,808
  8,302
  9,980
  11,845
  14,036
  16,268
  18,679
  21,265
  24,023
  26,947
  30,034
  33,282
  36,688
  40,251
  43,970
  47,847
  51,883
  56,081
  60,445
  64,981
  69,695
  74,593
  79,684
  84,977

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,580
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  9,962
  11,787
  16,163
  21,645
  28,360
  36,421
  45,920
  56,928
  69,495
  83,650
  99,402
  116,745
  135,661
  156,123
  178,096
  201,546
  226,438
  252,739
  280,424
  309,471
  339,869
  371,614
  404,711
  439,174
  475,029
  512,308
  551,053
  591,316
  633,157
  676,645
  721,855
Adjusted assets (=assets-cash), $m
  8,382
  11,787
  16,163
  21,645
  28,360
  36,421
  45,920
  56,928
  69,495
  83,650
  99,402
  116,745
  135,661
  156,123
  178,096
  201,546
  226,438
  252,739
  280,424
  309,471
  339,869
  371,614
  404,711
  439,174
  475,029
  512,308
  551,053
  591,316
  633,157
  676,645
  721,855
Revenue / Adjusted assets
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
  0.708
Average production assets, $m
  5,306
  7,469
  10,242
  13,716
  17,971
  23,079
  29,098
  36,073
  44,036
  53,005
  62,987
  73,977
  85,963
  98,929
  112,853
  127,712
  143,485
  160,151
  177,693
  196,099
  215,361
  235,477
  256,449
  278,287
  301,007
  324,629
  349,180
  374,693
  401,206
  428,763
  457,411
Working capital, $m
  -485
  -2,453
  -3,364
  -4,505
  -5,903
  -7,581
  -9,558
  -11,850
  -14,466
  -17,412
  -20,691
  -24,301
  -28,238
  -32,497
  -37,071
  -41,952
  -47,134
  -52,608
  -58,371
  -64,417
  -70,744
  -77,352
  -84,241
  -91,415
  -98,878
  -106,638
  -114,703
  -123,084
  -131,793
  -140,845
  -150,256
Total debt, $m
  2,964
  5,374
  8,880
  13,271
  18,650
  25,106
  32,715
  41,532
  51,599
  62,936
  75,554
  89,446
  104,598
  120,987
  138,588
  157,372
  177,310
  198,377
  220,552
  243,819
  268,168
  293,596
  320,106
  347,712
  376,431
  406,291
  437,326
  469,577
  503,092
  537,925
  574,139
Total liabilities, $m
  7,031
  9,441
  12,947
  17,338
  22,717
  29,173
  36,782
  45,599
  55,666
  67,003
  79,621
  93,513
  108,665
  125,054
  142,655
  161,439
  181,377
  202,444
  224,619
  247,886
  272,235
  297,663
  324,173
  351,779
  380,498
  410,358
  441,393
  473,644
  507,159
  541,992
  578,206
Total equity, $m
  2,931
  2,346
  3,216
  4,307
  5,644
  7,248
  9,138
  11,329
  13,830
  16,646
  19,781
  23,232
  26,997
  31,068
  35,441
  40,108
  45,061
  50,295
  55,804
  61,585
  67,634
  73,951
  80,537
  87,396
  94,531
  101,949
  109,660
  117,672
  125,998
  134,652
  143,649
Total liabilities and equity, $m
  9,962
  11,787
  16,163
  21,645
  28,361
  36,421
  45,920
  56,928
  69,496
  83,649
  99,402
  116,745
  135,662
  156,122
  178,096
  201,547
  226,438
  252,739
  280,423
  309,471
  339,869
  371,614
  404,710
  439,175
  475,029
  512,307
  551,053
  591,316
  633,157
  676,644
  721,855
Debt-to-equity ratio
  1.011
  2.290
  2.760
  3.080
  3.300
  3.460
  3.580
  3.670
  3.730
  3.780
  3.820
  3.850
  3.870
  3.890
  3.910
  3.920
  3.930
  3.940
  3.950
  3.960
  3.960
  3.970
  3.970
  3.980
  3.980
  3.990
  3.990
  3.990
  3.990
  3.990
  4.000
Adjusted equity ratio
  0.161
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  814
  1,403
  1,932
  2,592
  3,398
  4,363
  5,497
  6,808
  8,302
  9,980
  11,845
  14,036
  16,268
  18,679
  21,265
  24,023
  26,947
  30,034
  33,282
  36,688
  40,251
  43,970
  47,847
  51,883
  56,081
  60,445
  64,981
  69,695
  74,593
  79,684
  84,977
Depreciation, amort., depletion, $m
  363
  625
  785
  986
  1,232
  1,527
  1,875
  2,279
  2,739
  3,257
  3,834
  4,276
  4,969
  5,718
  6,523
  7,382
  8,294
  9,257
  10,271
  11,335
  12,449
  13,611
  14,824
  16,086
  17,399
  18,765
  20,184
  21,659
  23,191
  24,784
  26,440
Funds from operations, $m
  1,475
  2,028
  2,717
  3,578
  4,631
  5,891
  7,373
  9,087
  11,041
  13,238
  15,679
  18,312
  21,237
  24,397
  27,789
  31,405
  35,241
  39,292
  43,554
  48,023
  52,700
  57,582
  62,671
  67,969
  73,480
  79,210
  85,165
  91,353
  97,784
  104,468
  111,417
Change in working capital, $m
  89
  -710
  -911
  -1,141
  -1,398
  -1,678
  -1,977
  -2,291
  -2,616
  -2,946
  -3,279
  -3,610
  -3,937
  -4,259
  -4,574
  -4,881
  -5,181
  -5,475
  -5,763
  -6,046
  -6,327
  -6,608
  -6,889
  -7,174
  -7,463
  -7,760
  -8,065
  -8,381
  -8,709
  -9,052
  -9,411
Cash from operations, $m
  1,386
  2,738
  3,628
  4,719
  6,028
  7,569
  9,350
  11,378
  13,657
  16,184
  18,958
  21,922
  25,174
  28,656
  32,362
  36,286
  40,422
  44,766
  49,316
  54,070
  59,027
  64,189
  69,560
  75,142
  80,943
  86,970
  93,230
  99,734
  106,493
  113,520
  120,827
Maintenance CAPEX, $m
  0
  -307
  -432
  -592
  -793
  -1,039
  -1,334
  -1,682
  -2,085
  -2,545
  -3,064
  -3,641
  -4,276
  -4,969
  -5,718
  -6,523
  -7,382
  -8,294
  -9,257
  -10,271
  -11,335
  -12,449
  -13,611
  -14,824
  -16,086
  -17,399
  -18,765
  -20,184
  -21,659
  -23,191
  -24,784
New CAPEX, $m
  -678
  -2,163
  -2,773
  -3,474
  -4,255
  -5,108
  -6,019
  -6,975
  -7,963
  -8,969
  -9,981
  -10,990
  -11,986
  -12,966
  -13,924
  -14,859
  -15,773
  -16,666
  -17,543
  -18,406
  -19,262
  -20,115
  -20,972
  -21,838
  -22,720
  -23,622
  -24,551
  -25,513
  -26,513
  -27,556
  -28,648
Cash from investing activities, $m
  -2,622
  -2,470
  -3,205
  -4,066
  -5,048
  -6,147
  -7,353
  -8,657
  -10,048
  -11,514
  -13,045
  -14,631
  -16,262
  -17,935
  -19,642
  -21,382
  -23,155
  -24,960
  -26,800
  -28,677
  -30,597
  -32,564
  -34,583
  -36,662
  -38,806
  -41,021
  -43,316
  -45,697
  -48,172
  -50,747
  -53,432
Free cash flow, $m
  -1,236
  268
  423
  654
  980
  1,422
  1,997
  2,721
  3,608
  4,669
  5,913
  7,291
  8,912
  10,722
  12,720
  14,903
  17,267
  19,806
  22,516
  25,392
  28,430
  31,625
  34,976
  38,481
  42,138
  45,949
  49,914
  54,037
  58,322
  62,773
  67,396
Issuance/(repayment) of debt, $m
  1,795
  2,729
  3,505
  4,391
  5,379
  6,457
  7,609
  8,818
  10,066
  11,338
  12,617
  13,892
  15,152
  16,390
  17,601
  18,783
  19,938
  21,067
  22,175
  23,267
  24,349
  25,428
  26,511
  27,605
  28,719
  29,860
  31,035
  32,251
  33,515
  34,833
  36,213
Issuance/(repurchase) of shares, $m
  -193
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,627
  2,729
  3,505
  4,391
  5,379
  6,457
  7,609
  8,818
  10,066
  11,338
  12,617
  13,892
  15,152
  16,390
  17,601
  18,783
  19,938
  21,067
  22,175
  23,267
  24,349
  25,428
  26,511
  27,605
  28,719
  29,860
  31,035
  32,251
  33,515
  34,833
  36,213
Total cash flow (excl. dividends), $m
  391
  2,997
  3,929
  5,045
  6,359
  7,879
  9,605
  11,539
  13,674
  16,007
  18,530
  21,183
  24,064
  27,111
  30,321
  33,687
  37,205
  40,874
  44,692
  48,659
  52,779
  57,053
  61,487
  66,086
  70,857
  75,809
  80,949
  86,288
  91,837
  97,606
  103,609
Retained Cash Flow (-), $m
  -520
  -676
  -871
  -1,091
  -1,336
  -1,604
  -1,890
  -2,191
  -2,501
  -2,817
  -3,135
  -3,451
  -3,764
  -4,072
  -4,373
  -4,667
  -4,953
  -5,234
  -5,509
  -5,780
  -6,049
  -6,317
  -6,586
  -6,858
  -7,135
  -7,418
  -7,710
  -8,012
  -8,326
  -8,654
  -8,997
Prev. year cash balance distribution, $m
 
  1,261
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,583
  3,058
  3,954
  5,023
  6,275
  7,715
  9,348
  11,174
  13,190
  15,395
  17,732
  20,299
  23,040
  25,948
  29,020
  32,252
  35,640
  39,182
  42,879
  46,729
  50,736
  54,901
  59,228
  63,722
  68,390
  73,239
  78,276
  83,510
  88,952
  94,612
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  3,435
  2,800
  3,441
  4,136
  4,864
  5,599
  6,315
  6,984
  7,577
  8,071
  8,421
  8,662
  8,760
  8,711
  8,520
  8,196
  7,755
  7,216
  6,602
  5,938
  5,248
  4,555
  3,882
  3,246
  2,660
  2,137
  1,680
  1,292
  971
  712
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Alaska Air Group, Inc. is the holding company of Alaska Airlines (Alaska), Virgin America Inc., Horizon Air (Horizon) and other business units. The Company operates through three segments: Mainline, Regional and Horizon. Its Mainline segment includes Alaska's and Virgin America's scheduled air transportation for passengers and cargo throughout the United States, and in parts of Canada, Mexico, Costa Rica and Cuba. Its Regional segment includes Horizon's and other third-party carriers' scheduled air transportation for passengers across a shorter distance network within the United States under capacity purchased arrangements (CPAs). Its Horizon segment includes the capacity sold to Alaska under CPA. Alaska and Virgin America operate fleets of narrowbody passenger jets. As of December 31, 2016, it maintained two frequent flyer plans: the Alaska Airlines Mileage Plan and the Virgin America Elevate.

FINANCIAL RATIOS  of  Alaska Air Group (ALK)

Valuation Ratios
P/E Ratio 10.6
Price to Sales 1.4
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 12.1
Growth Rates
Sales Growth Rate 5.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.4%
Cap. Spend. - 3 Yr. Gr. Rate 3.6%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 90.2%
Total Debt to Equity 101.1%
Interest Coverage 57
Management Effectiveness
Return On Assets 10%
Ret/ On Assets - 3 Yr. Avg. 11.3%
Return On Total Capital 18.1%
Ret/ On T. Cap. - 3 Yr. Avg. 22.3%
Return On Equity 30.5%
Return On Equity - 3 Yr. Avg. 32.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 37%
Gross Margin - 3 Yr. Avg. 34.7%
EBITDA Margin 29.2%
EBITDA Margin - 3 Yr. Avg. 27.6%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 21.3%
Pre-Tax Margin 22.7%
Pre-Tax Margin - 3 Yr. Avg. 21.4%
Net Profit Margin 13.7%
Net Profit Margin - 3 Yr. Avg. 13.4%
Effective Tax Rate 39.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 16.7%

ALK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALK stock intrinsic value calculation we used $5931 million for the last fiscal year's total revenue generated by Alaska Air Group. The default revenue input number comes from 2016 income statement of Alaska Air Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ALK stock valuation model: a) initial revenue growth rate of 40.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ALK is calculated based on our internal credit rating of Alaska Air Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Alaska Air Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ALK stock the variable cost ratio is equal to 76.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ALK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Alaska Air Group.

Corporate tax rate of 27% is the nominal tax rate for Alaska Air Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ALK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ALK are equal to 89.5%.

Life of production assets of 17.3 years is the average useful life of capital assets used in Alaska Air Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ALK is equal to -29.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2931 million for Alaska Air Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 123.478 million for Alaska Air Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Alaska Air Group at the current share price and the inputted number of shares is $8.6 billion.

RELATED COMPANIES Price Int.Val. Rating
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UAL United Contine 64.24 200.46  str.buy
SKYW Skywest 53.85 18.86  str.sell
JBLU JetBlue Airway 22.19 45.02  str.buy
SAVE Spirit Airline 42.89 224.35  str.buy
ALGT Allegiant Trav 146.25 367.89  str.buy
LUV Southwest Airl 63.32 93.91  str.buy

COMPANY NEWS

▶ Is Alaska Air Group Incs (ALK) ROE Of 24.39% Sustainable?   [Dec-04-17 08:10AM  Simply Wall St.]
▶ New Strong Sell Stocks for November 27th   [Nov-27-17 09:31AM  Zacks]
▶ What Are Analysts Recommending for the Top US Airlines?   [Nov-24-17 10:31AM  Market Realist]
▶ JetBlue Airways 3Q17 Performance: Outshines Peers   [Nov-23-17 10:31AM  Market Realist]
▶ [$$] Delta, JetBlue Add Flights in Battle for Boston Market Share   [Nov-17-17 11:08PM  The Wall Street Journal]
▶ [$$] Delta, JetBlue Battle for Boston Fliers   [07:00AM  The Wall Street Journal]
▶ Bold calls & earnings movers in the trader blitz   [Nov-16-17 02:55PM  CNBC Videos]
▶ The Hot Stock: Alaska Air's More Rocket Than Airplane   [Nov-15-17 05:30PM  Barrons.com]
▶ Industrials top components Nov-Dec   [12:46PM  CNBC Videos]
▶ Alaska Airlines to halt flights to Cuba   [Nov-14-17 08:28PM  Associated Press]
▶ 4 Top Airline Stocks to Buy Now   [Nov-08-17 09:40PM  Motley Fool]
▶ 1 Airline That Soared in October -- and 2 That Didn't   [Nov-07-17 06:27PM  Motley Fool]
▶ Alaska Air Group Declares Quarterly Dividend   [Nov-03-17 08:30AM  PR Newswire]
▶ U.S. Airfares Set To Rise In 2018   [09:49AM  Forbes]
▶ Southwest Airlines Reduces Its Debt Slightly   [09:02AM  Market Realist]
▶ Alaska Air execs detail frustration and anxiety during Virgin America takeover   [Oct-30-17 03:19PM  American City Business Journals]
▶ Groupon Rolls Out New Loyalty Program   [11:09AM  Market Realist]
Financial statements of ALK
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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