Intrinsic value of Alaska Air Group - ALK

Previous Close

$80.02

  Intrinsic Value

$613.50

stock screener

  Rating & Target

str. buy

+667%

  Value-price divergence*

+88%

Previous close

$80.02

 
Intrinsic value

$613.50

 
Up/down potential

+667%

 
Rating

str. buy

 
Value-price divergence*

+88%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 9.9

 

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
  29.80
  27.32
  25.09
  23.08
  21.27
  19.64
  18.18
  16.86
  15.68
  14.61
  13.65
  12.78
  12.00
  11.30
  10.67
  10.11
  9.60
  9.14
  8.72
  8.35
  8.02
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
Revenue, $m
  5,931
  7,698
  9,802
  12,261
  15,090
  18,300
  21,895
  25,876
  30,239
  34,979
  40,089
  45,560
  51,383
  57,551
  64,057
  70,894
  78,059
  85,549
  93,364
  101,508
  109,984
  118,799
  127,963
  137,486
  147,383
  157,667
  168,358
  179,473
  191,035
  203,067
  215,592
Variable operating expenses, $m
 
  5,855
  7,401
  9,210
  11,291
  13,651
  16,295
  19,222
  22,431
  25,917
  29,674
  33,504
  37,787
  42,323
  47,107
  52,135
  57,404
  62,912
  68,659
  74,648
  80,881
  87,364
  94,103
  101,106
  108,384
  115,947
  123,809
  131,983
  140,486
  149,333
  158,544
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
  5,855
  7,401
  9,210
  11,291
  13,651
  16,295
  19,222
  22,431
  25,917
  29,674
  33,504
  37,787
  42,323
  47,107
  52,135
  57,404
  62,912
  68,659
  74,648
  80,881
  87,364
  94,103
  101,106
  108,384
  115,947
  123,809
  131,983
  140,486
  149,333
  158,544
Operating income, $m
  1,349
  1,844
  2,400
  3,051
  3,800
  4,649
  5,600
  6,654
  7,808
  9,062
  10,414
  12,055
  13,596
  15,229
  16,950
  18,759
  20,655
  22,637
  24,705
  26,860
  29,103
  31,435
  33,860
  36,380
  38,999
  41,720
  44,549
  47,490
  50,550
  53,733
  57,047
EBITDA, $m
  1,712
  2,435
  3,101
  3,879
  4,774
  5,789
  6,926
  8,186
  9,566
  11,065
  12,682
  14,412
  16,255
  18,206
  20,264
  22,427
  24,693
  27,063
  29,535
  32,111
  34,793
  37,581
  40,480
  43,493
  46,623
  49,877
  53,259
  56,775
  60,433
  64,239
  68,201
Interest expense (income), $m
  24
  93
  162
  246
  343
  455
  582
  725
  882
  1,055
  1,243
  1,445
  1,662
  1,892
  2,137
  2,394
  2,665
  2,949
  3,245
  3,555
  3,877
  4,213
  4,562
  4,925
  5,302
  5,694
  6,101
  6,524
  6,964
  7,422
  7,899
Earnings before tax, $m
  1,345
  1,751
  2,238
  2,805
  3,456
  4,194
  5,018
  5,929
  6,926
  8,007
  9,172
  10,610
  11,935
  13,336
  14,813
  16,365
  17,990
  19,688
  21,460
  23,305
  25,226
  27,223
  29,298
  31,455
  33,697
  36,026
  38,448
  40,966
  43,585
  46,311
  49,149
Tax expense, $m
  531
  473
  604
  757
  933
  1,132
  1,355
  1,601
  1,870
  2,162
  2,476
  2,865
  3,222
  3,601
  4,000
  4,419
  4,857
  5,316
  5,794
  6,292
  6,811
  7,350
  7,911
  8,493
  9,098
  9,727
  10,381
  11,061
  11,768
  12,504
  13,270
Net income, $m
  814
  1,278
  1,634
  2,048
  2,523
  3,061
  3,663
  4,328
  5,056
  5,845
  6,695
  7,746
  8,712
  9,735
  10,814
  11,946
  13,133
  14,372
  15,666
  17,013
  18,415
  19,872
  21,388
  22,962
  24,599
  26,299
  28,067
  29,905
  31,817
  33,807
  35,879

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
  10,874
  13,844
  17,317
  21,314
  25,848
  30,925
  36,548
  42,710
  49,405
  56,622
  64,350
  72,575
  81,287
  90,476
  100,133
  110,252
  120,832
  131,871
  143,373
  155,345
  167,796
  180,739
  194,190
  208,168
  222,694
  237,794
  253,494
  269,824
  286,817
  304,508
Adjusted assets (=assets-cash), $m
  8,382
  10,874
  13,844
  17,317
  21,314
  25,848
  30,925
  36,548
  42,710
  49,405
  56,622
  64,350
  72,575
  81,287
  90,476
  100,133
  110,252
  120,832
  131,871
  143,373
  155,345
  167,796
  180,739
  194,190
  208,168
  222,694
  237,794
  253,494
  269,824
  286,817
  304,508
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
  6,890
  8,772
  10,973
  13,506
  16,379
  19,596
  23,159
  27,064
  31,306
  35,879
  40,776
  45,988
  51,509
  57,331
  63,450
  69,863
  76,566
  83,561
  90,850
  98,436
  106,325
  114,527
  123,050
  131,908
  141,112
  150,680
  160,629
  170,977
  181,745
  192,955
Working capital, $m
  -485
  -770
  -980
  -1,226
  -1,509
  -1,830
  -2,190
  -2,588
  -3,024
  -3,498
  -4,009
  -4,556
  -5,138
  -5,755
  -6,406
  -7,089
  -7,806
  -8,555
  -9,336
  -10,151
  -10,998
  -11,880
  -12,796
  -13,749
  -14,738
  -15,767
  -16,836
  -17,947
  -19,104
  -20,307
  -21,559
Total debt, $m
  2,964
  4,643
  7,022
  9,804
  13,006
  16,637
  20,704
  25,208
  30,144
  35,507
  41,288
  47,477
  54,066
  61,044
  68,404
  76,139
  84,245
  92,719
  101,561
  110,775
  120,364
  130,337
  140,705
  151,479
  162,675
  174,311
  186,406
  198,981
  212,062
  225,674
  239,844
Total liabilities, $m
  7,031
  8,710
  11,089
  13,871
  17,073
  20,704
  24,771
  29,275
  34,211
  39,574
  45,355
  51,544
  58,133
  65,111
  72,471
  80,206
  88,312
  96,786
  105,628
  114,842
  124,431
  134,404
  144,772
  155,546
  166,742
  178,378
  190,473
  203,048
  216,129
  229,741
  243,911
Total equity, $m
  2,931
  2,164
  2,755
  3,446
  4,241
  5,144
  6,154
  7,273
  8,499
  9,832
  11,268
  12,806
  14,442
  16,176
  18,005
  19,926
  21,940
  24,045
  26,242
  28,531
  30,914
  33,391
  35,967
  38,644
  41,425
  44,316
  47,321
  50,445
  53,695
  57,077
  60,597
Total liabilities and equity, $m
  9,962
  10,874
  13,844
  17,317
  21,314
  25,848
  30,925
  36,548
  42,710
  49,406
  56,623
  64,350
  72,575
  81,287
  90,476
  100,132
  110,252
  120,831
  131,870
  143,373
  155,345
  167,795
  180,739
  194,190
  208,167
  222,694
  237,794
  253,493
  269,824
  286,818
  304,508
Debt-to-equity ratio
  1.011
  2.150
  2.550
  2.840
  3.070
  3.230
  3.360
  3.470
  3.550
  3.610
  3.660
  3.710
  3.740
  3.770
  3.800
  3.820
  3.840
  3.860
  3.870
  3.880
  3.890
  3.900
  3.910
  3.920
  3.930
  3.930
  3.940
  3.940
  3.950
  3.950
  3.960
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
  1,278
  1,634
  2,048
  2,523
  3,061
  3,663
  4,328
  5,056
  5,845
  6,695
  7,746
  8,712
  9,735
  10,814
  11,946
  13,133
  14,372
  15,666
  17,013
  18,415
  19,872
  21,388
  22,962
  24,599
  26,299
  28,067
  29,905
  31,817
  33,807
  35,879
Depreciation, amort., depletion, $m
  363
  592
  700
  828
  974
  1,140
  1,326
  1,532
  1,758
  2,003
  2,267
  2,357
  2,658
  2,977
  3,314
  3,668
  4,038
  4,426
  4,830
  5,251
  5,690
  6,146
  6,620
  7,113
  7,625
  8,157
  8,710
  9,285
  9,883
  10,505
  11,153
Funds from operations, $m
  1,475
  1,870
  2,334
  2,875
  3,497
  4,202
  4,989
  5,860
  6,814
  7,848
  8,963
  10,103
  11,371
  12,713
  14,128
  15,614
  17,171
  18,798
  20,496
  22,264
  24,105
  26,018
  28,008
  30,075
  32,223
  34,456
  36,777
  39,190
  41,700
  44,312
  47,032
Change in working capital, $m
  89
  -177
  -210
  -246
  -283
  -321
  -359
  -398
  -436
  -474
  -511
  -547
  -582
  -617
  -651
  -684
  -716
  -749
  -782
  -814
  -848
  -882
  -916
  -952
  -990
  -1,028
  -1,069
  -1,112
  -1,156
  -1,203
  -1,253
Cash from operations, $m
  1,386
  2,047
  2,544
  3,121
  3,780
  4,523
  5,349
  6,258
  7,250
  8,322
  9,474
  10,650
  11,953
  13,330
  14,778
  16,298
  17,888
  19,547
  21,277
  23,079
  24,952
  26,900
  28,924
  31,028
  33,213
  35,485
  37,846
  40,302
  42,856
  45,516
  48,285
Maintenance CAPEX, $m
  0
  -307
  -398
  -507
  -634
  -781
  -947
  -1,133
  -1,339
  -1,564
  -1,810
  -2,074
  -2,357
  -2,658
  -2,977
  -3,314
  -3,668
  -4,038
  -4,426
  -4,830
  -5,251
  -5,690
  -6,146
  -6,620
  -7,113
  -7,625
  -8,157
  -8,710
  -9,285
  -9,883
  -10,505
New CAPEX, $m
  -678
  -1,585
  -1,882
  -2,201
  -2,533
  -2,873
  -3,217
  -3,563
  -3,905
  -4,242
  -4,573
  -4,897
  -5,212
  -5,521
  -5,822
  -6,119
  -6,412
  -6,704
  -6,995
  -7,288
  -7,586
  -7,890
  -8,202
  -8,523
  -8,857
  -9,205
  -9,568
  -9,948
  -10,348
  -10,768
  -11,210
Cash from investing activities, $m
  -2,622
  -1,892
  -2,280
  -2,708
  -3,167
  -3,654
  -4,164
  -4,696
  -5,244
  -5,806
  -6,383
  -6,971
  -7,569
  -8,179
  -8,799
  -9,433
  -10,080
  -10,742
  -11,421
  -12,118
  -12,837
  -13,580
  -14,348
  -15,143
  -15,970
  -16,830
  -17,725
  -18,658
  -19,633
  -20,651
  -21,715
Free cash flow, $m
  -1,236
  155
  264
  413
  613
  869
  1,185
  1,563
  2,006
  2,516
  3,091
  3,679
  4,384
  5,151
  5,978
  6,865
  7,808
  8,805
  9,857
  10,960
  12,115
  13,320
  14,577
  15,884
  17,243
  18,655
  20,121
  21,643
  23,224
  24,865
  26,569
Issuance/(repayment) of debt, $m
  1,795
  1,998
  2,379
  2,782
  3,201
  3,632
  4,067
  4,503
  4,936
  5,363
  5,781
  6,190
  6,589
  6,978
  7,360
  7,735
  8,106
  8,474
  8,842
  9,213
  9,589
  9,973
  10,367
  10,774
  11,196
  11,636
  12,095
  12,576
  13,081
  13,612
  14,171
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
  1,998
  2,379
  2,782
  3,201
  3,632
  4,067
  4,503
  4,936
  5,363
  5,781
  6,190
  6,589
  6,978
  7,360
  7,735
  8,106
  8,474
  8,842
  9,213
  9,589
  9,973
  10,367
  10,774
  11,196
  11,636
  12,095
  12,576
  13,081
  13,612
  14,171
Total cash flow (excl. dividends), $m
  391
  2,153
  2,643
  3,195
  3,815
  4,501
  5,252
  6,066
  6,942
  7,878
  8,872
  9,869
  10,972
  12,129
  13,339
  14,600
  15,913
  17,279
  18,699
  20,173
  21,704
  23,294
  24,944
  26,658
  28,439
  30,291
  32,216
  34,219
  36,304
  38,476
  40,740
Retained Cash Flow (-), $m
  -520
  -494
  -591
  -691
  -795
  -902
  -1,010
  -1,119
  -1,226
  -1,332
  -1,436
  -1,538
  -1,637
  -1,734
  -1,829
  -1,922
  -2,014
  -2,105
  -2,197
  -2,289
  -2,382
  -2,478
  -2,576
  -2,677
  -2,782
  -2,891
  -3,005
  -3,124
  -3,250
  -3,382
  -3,521
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
 
  2,920
  2,052
  2,504
  3,019
  3,598
  4,241
  4,947
  5,716
  6,546
  7,436
  8,331
  9,336
  10,396
  11,510
  12,678
  13,900
  15,174
  16,502
  17,884
  19,322
  20,816
  22,368
  23,982
  25,658
  27,400
  29,211
  31,095
  33,054
  35,095
  37,219
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
 
  2,800
  1,879
  2,179
  2,486
  2,789
  3,078
  3,342
  3,573
  3,760
  3,898
  3,956
  3,984
  3,953
  3,864
  3,722
  3,532
  3,302
  3,039
  2,754
  2,455
  2,153
  1,856
  1,572
  1,307
  1,066
  852
  667
  511
  383
  280
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., through its subsidiaries, provides passengers and cargo air transportation services primarily in the United States. The company operates through three segments: Alaska Mainline, Alaska Regional, and Horizon. It has a network of approximately 1,200 daily flights to 118 destinations across the United States, Mexico, Canada, Costa Rica, and Cuba. The company was founded in 1932 and is based in Seattle, Washington.

FINANCIAL RATIOS  of  Alaska Air Group (ALK)

Valuation Ratios
P/E Ratio 12.1
Price to Sales 1.7
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 7.1
Price to Free Cash Flow 13.9
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 44.9%
Gross Margin - 3 Yr. Avg. 42.3%
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 29.8% 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 -10%. 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 123.204 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 $9.9 billion.

RELATED COMPANIES Price Int.Val. Rating
AAL American Airli 46.03 74.99  buy
DAL Delta Air Line 47.53 125.82  str.buy
HA Hawaiian Holdi 41.10 156.16  str.buy
UAL United Contine 64.70 214.43  str.buy
SKYW Skywest 34.40 19.24  sell
JBLU JetBlue Airway 20.49 37.01  str.buy
SAVE Spirit Airline 36.81 131.70  str.buy
ALGT Allegiant Trav 119.45 332.81  str.buy
LUV Southwest Airl 53.15 71.90  hold

COMPANY NEWS

▶ Evening Sector Snapshot: Seeing Red   [Aug-17-17 04:22PM  Barrons.com]
▶ U.S. airlines are still making money, just not as much as last year   [Aug-16-17 02:55PM  American City Business Journals]
▶ Tighten Your Seat Belt on Alaska Air   [11:18AM  TheStreet.com]
▶ Hawaiian Airlines, Alaska Airlines post June employment gains   [Aug-10-17 05:35PM  American City Business Journals]
▶ Alaska Airlines launches nonstop service from LAX to Mexico City   [Aug-08-17 05:40PM  American City Business Journals]
▶ Which Low Cost Airline Should You Buy?   [02:17PM  Barrons.com]
▶ What Wall Street Analysts Recommend for Spirit Airlines   [Aug-01-17 09:06AM  Market Realist]
▶ Virgin America computer systems hacked   [Jul-31-17 06:48PM  Associated Press]
▶ Virgin America Computer Systems Hacked   [06:27PM  Bloomberg]
▶ Why Spirit Airlines 2Q17 Earnings Triggered a Sell-Off   [Jul-28-17 01:39PM  Market Realist]
▶ Alaska Air tops 2Q profit forecasts   [Jul-26-17 09:54PM  Associated Press]
▶ Airlines facing crisis that could 'put some airlines out of business'   [01:20PM  American City Business Journals]
▶ Pilots Just Cost This Airline $140 Million   [11:11AM  TheStreet.com]
▶ Delta and Alaska Air back Sea-Tac Airport's $30M plan for faster TSA screening lines   [Jul-25-17 11:15PM  American City Business Journals]
▶ JetBlue considering JFK expansion, looking for investors   [02:25PM  American City Business Journals]
▶ Whats Driving JetBlue Airways Valuation?   [07:37AM  Market Realist]
▶ Alaska Air CEO weighs in on replacing Virgin America's Airbus fleet with Boeing jets   [Jul-18-17 05:57PM  American City Business Journals]
▶ Alaska Airlines and American Airlines scale back mileage plan partnership   [Jul-14-17 11:25AM  American City Business Journals]
▶ The 3 Best Dividend Stocks in Airlines   [Jul-13-17 05:30PM  Motley Fool]
▶ American Airlines Valuation: Whats Priced In?   [10:37AM  Market Realist]
▶ Wall Street Analysts Recommendations for American Airlines   [Jul-11-17 11:56AM  Market Realist]
▶ Inside Alaska Airs Valuation: Cheap Enough?   [10:37AM  Market Realist]
▶ Alaska Air Group reports June 2017 operational results   [Jul-10-17 12:54PM  PR Newswire]
Stock chart of ALK 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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