In the world of airline investing, Alaska Airlines ( ALK) is undercovered by analysts, unloved by traders and overlooked by Wall Street. But as the second-quarter earnings season approaches, this airline based in the Pacific Northwest could be undervalued as well. The company is increasingly a favorite of short-sellers, in part because its capital structure makes the chance of a wide earnings miss higher than average. When Alaska Air releases second-quarter earnings on July 22, the mean estimate of nine analysts polled by Thomson First Call is for a loss of 60 cents a share. But, partly because the company only has 26.6 million shares outstanding, earnings estimates run the gamut, from break-even to a loss of $1.15 a share. In a June 16 filing with the Securities and Exchange Commission, Alaska Air said May business fundamentals were improving, with load factor jumping to 69.9% from the year-ago 65.7% at its Alaska Air unit. Its Horizon Air unit, which runs smaller, propeller planes, posted a similar increase. Despite the good news, none of the major brokerages have upped their earnings estimates or commented on the company's SEC filing, now a week old.
"Nobody's focused on this," said Helane Becker, analyst at Benchmark Co. "The only person to do anything on this raised their estimate from a loss of 66 cents to a loss of 44 cents. Certainly analysts are not focused on their earnings right now. This company is being overlooked and that's why we have it a buy." Indeed, a month ago, Citigroup Smith Barney dropped coverage on the company "as part of an effort to more effectively deploy" its research. Major brokerages rarely issue company-specific notes on Alaska Air, generally only mentioning the name in sector analyses. And because Alaska Air rarely does investment banking, there's less incentive to cover the airline closely.