Alaska Air Group Vs. JetBlue Airways: Which Is The Better Long Term Buy?

|
Includes: ALK, JBLU
by: Stan Stafford

Summary

In this article, I will review the Alaska Air Group and JetBlue Airways to determine which stock is currently the best long-term buy.

I will examine each stock's value as a stable, growth, value, and defensive investment based on a wide number of metrics.

The results of the analysis lead me to believe that Alaska Air Group is currently the stronger long term buy at the moment due to strong stability and growth metrics.

In this article, I will be taking a look at both Alaska Air Group (NYSE:ALK) and JetBlue Airways (NASDAQ:JBLU) for specific types of investors based on a variety of metrics. In doing so, I will be reviewing each stock based on the following characteristics:

  • Stability
  • Growth
  • Value
  • Defense

Since all investors are not the same, I believe that looking at companies through a range of lenses is useful in determining the worth of specific stocks. In my review, I will be comparing the two stocks on individual metrics, and then tallying the results of those values to determine a winning stock for each category.

STABILITY

The purpose of this category is determine which stock has the best overall financial position, possessing a stable and consistent balance sheet and overall value.

Return on Assets

Alaska Air Group has a significant advantage in terms of ROA with a value of 11.53% compared to JetBlue's 5.72% value.

Return on Invested Capital

The advantage is even greater for Alaska Air in terms of ROIC with a value of 24.40% compared to JetBlue's 9.53%.

Earnings Yield

The earnings yield of both companies is more closely comparable, but Alaska Air does still hold the advantage.

ALK Earnings Yield (<a href=

ALK Earnings Yield (NYSE:TTM) data by YCharts

Book Value

Both companies have increased their book value significantly over the past five years, but once again Alaska Air outperforms JetBlue in this metric as well.

ALK Book Value (Per Share) Chart

ALK Book Value (Per Share) data by YCharts

Outstanding Shares

Over the past five years, Alaska Air has been able to reduce its number of outstanding shares, while JetBlue's outstanding shares have increased during the same time frame.

ALK Shares Outstanding Chart

ALK Shares Outstanding data by YCharts

Summary

In the stability section, Alaska Air went for the clean sweep, performing better in every single metric and doing so convincingly with only earnings yield being relatively close. Alaska Air Group appears to be in a much better stable position compared to JetBlue.

GROWTH

The purpose of this category is to determine which stock has seen the most growth over the past several years and which stock is likely to continue seeing the most growth in the future.

Revenue Growth

While both companies have seen decent revenue growth, JetBlue's has been more impressive with more than three times the growth of Alaska Air.

ALK Revenue Chart

ALK Revenue (TTM) data by YCharts

Earnings Growth

In terms of earnings, it is Alaska Air Group that has seen the more impressive growth with earnings growth more than double that of JetBlue.

ALK EPS Basic Chart

ALK EPS Basic (TTM) data by YCharts

Profit Margin

With the greater earnings growth, its not much of a surprise that Alaska Air also currently maintains the higher profit margin with a value of 13.31% compared to JetBlue's 7.46% margin.

Return On Equity

Just as with ROA, Alaska Air has a significant advantage in terms of ROE with a value of 33.32% compared to 17.91% for JetBlue.

Stock Price Growth

Alaska Air Group has seen a far greater increase in stock price appreciation compared to JetBlue over the past decade.

ALK Chart

ALK data by YCharts

Summary

JetBlue has seen the higher revenue growth over the past several years, but in terms of earnings, profit margin, return on equity, and stock price appreciation, Alaska Air has been the better performer. I believe that Alaska Air's strong earnings and stock price growth make it a solid growth investment option.

VALUE

The purpose of this category is to judge each stock's current value to determine which one is more attractively priced.

PE ratios

When looking at trailing PE ratios, Alaska Air appears to be the more attractively valued, while both companies have nearly identical forward PE ratios.

Trailing PE Forward PE
Alaska Air 13.49x 11.75x
JetBlue 16.09x 11.56x

PEG ratios

PEG ratios are similar for both companies, but JetBlue does hold a slight advantage in terms of both trailing and forward PEG.

Trailing PEG Forward PEG
Alaska Air 0.60x 0.28x
JetBlue 0.56x 0.21x

Price to Book Value

JetBlue appears to be the more attractively priced stock based on its price to book value of 2.42x compared to Alaska Air's 4.25x value.

Price to Free Cash Flow Value

JetBlue holds the advantage here too with a price to free cash flow value of 19.58x, which compares favorably to Alaska Air's 25.94x value.

Summary

I feel that both companies are priced at fairly attractive valuations. While Alaska Air has the more attractive trailing PE ratio, JetBlue holds the advantage in terms of Price to Free Cash Flow value. I do believe that JetBlue holds the advantage in this category due to Alaska Air's higher price to book value.

DEFENSE

The purpose of this category is to judge how well each stock will hold up during a recession. I will be looking at both dividend's and past performance to score this.

Dividend History

JetBlue does not pay a dividend, while Alaska Air just started paying dividends in 2013. The yield is low (currently 0.98%), but the company's payout has doubled since its quarterly dividend was introduced just a few years ago.

Price Returns During Prior Recessions

During the 2007-09 recession, both stocks performed similarly, slightly outperforming the S&P500, with Alaska Air seeing the largest drop in its price during that time.

ALK Chart

ALK data by YCharts

JetBlue was not trading during the 2001 recession, while Alaska Air just did outperform the S&P 500 during that stretch, seeing a 9.45% decline compared to 12.7% for the S&P.

During the 1990-91 recession, Alaska Air slightly underperformed the S&P 500 seeing a 1.67% increase in its stock price while the S&P 500 averaged a 3.04% increase.

Summary

I wouldn't consider either of these stocks strong defensive investment options. The stocks performed nearly in line with the market in general during prior recessions and neither have strong yielding dividends to help offset declines in stock price.

Conclusion

I currently feel that Alaska Air is the stronger long term buy right now. JetBlue does offer a slightly more attractive valuation at the moment, but I believe that Alaska Air's strong history of growth in terms of earnings, book value, and stock price appreciation along with its higher returns on assets, equity, and invested capital more than make up for the slightly higher premium that Alaska Air currently trades at.

Considering that passenger miles, load factors, and capacity numbers for Alaska Air over the past several months have remained healthy, I believe the recent sell off has presented a great entry point for Alaska Air as it is currently down about $10 from its 52-week high of $82.15. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.