UPDATE: Morgan Stanley Upgrades Alaska Air Group Due to Recently Announced Initiatives

In a report published on Friday, Morgan Stanley analyst John D. Godyn Upgraded Alaska Air Group ALK from Underweight to Equal-weight and also raised the price target on the company from $55 to $65.

In the report, Morgan Stanley commented, "ALK has long been one of the ‘quality plays' among airlines given its relative margin strength (~20% EBITDAR vs. legacy airlines ~13%) and strong balance sheet/FCF profile. However, despite our quality-bias across much of our coverage, we've worried that ALK's margins, which are currently at approx. peak levels, were unsustainable and would attract competition – the key pillar supporting our prior UW on the stock. Though competitive pressures have emerged - and we expect them to get worse in the coming quarters - mgmt is showing agility in countering the earnings impact of these threats through a number of recently announced self-help measures intended to unlock some of the untapped value in ALK's franchise. Therefore, within the context of our Stronger For Longer view on the cycle and the rising price umbrella we envision for the industry going forward, we find it hard to argue that ALK will uniquely underperform peers despite its lower leverage to the cycle. As a result, we are upgrading ALK to EW and emphasize the following three points:
1. Greater conviction in earnings growth profile
2. Upside to cash returns to shareholders
3. Valuation does not justify UW."

Alaska Air Group closed on Thursday at $59.56