Alaska Air Group: Jim Simons Reduces Exposure to Airline Stock

Renaissance Technologies is a hedge fund managed by Jim Simons, an American mathematician, hedge fund manager, and philanthropist.  The fund tends to invest in all the sectors of the economy. In its recently filed Form 13F for the second quarter of the year, the fund disclosed 479 new stock positions, 1777 additional purchases, 924 trimmed bets and the closing of 416 of its preexisting stakes. The value of the equity portfolio decreased over the quarter, from $46.96 billion to $43.89 billion.

The fund’s third-largest position in the second quarter was in Alaska Air Group, Inc. (ALK). Following a 12% decrease in the firm’s stake, Jim Simons disclosed ownership of 6,045,200 shares of the company, worth more than $389.49 million, which account for roughly 0.88% of the total portfolio.

On the other hand, Cliff Asness reported an 11% increase in the stake to 1.51 million shares, valued at $97.45 million as of the end of the second quarter. This stake situates Mr. Asness as the third major shareholder in the company.

An improving air travel demand would drive growth and profitability in the upcoming future. It is fair to mention that the company´s business model is less seasonal than in the past years. Further, the firm has made improvements in its cost structure, so these facts make the stock a good option for investors who desire to bet on airline stocks. Moreover, the stock is trading near its all-time highs, showing the great interest in the market.

The next earnings date is expected to be at mid-October. Profit for Q3 is expected to rise 38% to $2.03 a share or a 4% increase in revenue to $1.52 billion. Alaska has demonstrated an upward trend in earnings per share growth over the past two years, and it is probable that this trend will continue.

Other measures make the stock attractive. The firm's gross profit margin of more than 40% is considered high, and the net profit margin of 13.31% is above its peers.

Another driving factor is the stock price performance in the past 12 months. It has surged by 70.81%, which was above the S&P 500 benchmark, and it seems to move even higher in the rest of the year.

In terms of relative valuation, the P/E ratio is at 14.81x, which is cheap when compared to the median of its industry. However, the P/B Ratio and the P/S Ratio are higher than the industry median.

Published on Sep 16, 2015
By Omar Venerio
Capital Markets, Derivatives and Financial Management Professor, Master in Finance and CFA candidate. I am an independent trader of stocks and options and passionate about the stock market.

Copyrighted 2016. Content published with author's permission.

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