Imperial Capital Starts Alaska Air (ALK) at In-Line
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Imperial Capital initiates coverage on Alaska Air (NYSE: ALK) with a In-Line rating and a price target of $74.00.
Analyst Michael Derchin commented, "While the pending acquisition of Virgin America Inc. (VA) would potentially provide ALK with longer-term growth opportunities, including revenue and cost synergies, the merger also brings both short-term and long-term risks. ALK has the customer loyalty, service, and financial strength, including an investment grade balance sheet and strong free cash flow, and management execution abilities to successfully integrate the two airlines, while maintaining its shareholder-friendly focus, in our view."
"By linking ALK's dominant position in the Pacific Northwest with VA's strong franchise in California, ALK is expected to develop new growth opportunities and product offerings. Nonetheless, in the short term, the merger brings many uncertainties, not the least of which is the complex, time consuming merger integration process (which typically takes two years, at least), increased competition on the West Coast and transcontinental routes, and fleet rationalization (ALK operates 737s and VA A320s). With the merger expected to receive anti-trust approvals by the end of this year, the stock is likely to tread water until more clarity on the specifics of the merger integration plan is developed, in our view."
Shares of Alaska Air closed at $66.04 yesterday.
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