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Here's Why Investors Should Retain American Airlines (AAL) Now
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American Airlines Group Inc. (AAL - Free Report) is benefiting from improved air travel demand and debt-reduction efforts. However, escalating fuel costs are worrisome.
Factors Favoring AAL
Continued recovery in air travel demand, particularly on the domestic front, bodes well for American Airlines. Recently, management lifted the earnings per share forecast for 2023, primarily driven by the rosy air-travel-demand scenario.
The company now expects 2023 earnings per share (on an adjusted basis) to be between $3 and $3.75 (earlier view: $2.5-$3.5). Driven by upbeat demand, the current-year adjusted operating margin is now anticipated in the 7-9% band (earlier guidance:11-13%).
The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025 end. The company aims to attain this objective through naturally occurring amortization. Also, it intends to utilize surplus cash and free cash flow to pay down prepayable debt. As of Jun 30, 2023, the carrier reduced its debt levels by more than $9 billion from peak levels in mid-2021.
Key Risks
The current scenario of rising fuel costs does not bode well for the airline. Oil price is moving northward mainly due to supply concerns triggered by the Russia-Ukraine war. Even though fuel price has come down from the highs witnessed earlier, it still remains at an elevated level. Fuel cost per gallon is projected in the range of $2.55-$2.65 for third-quarter 2023.
Zacks Rank
AAL currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) and Triton International Limited .
For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. Its current ratio (a measure of liquidity) was 3.83 at the end of second-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.
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Here's Why Investors Should Retain American Airlines (AAL) Now
American Airlines Group Inc. (AAL - Free Report) is benefiting from improved air travel demand and debt-reduction efforts. However, escalating fuel costs are worrisome.
Factors Favoring AAL
Continued recovery in air travel demand, particularly on the domestic front, bodes well for American Airlines. Recently, management lifted the earnings per share forecast for 2023, primarily driven by the rosy air-travel-demand scenario.
The company now expects 2023 earnings per share (on an adjusted basis) to be between $3 and $3.75 (earlier view: $2.5-$3.5). Driven by upbeat demand, the current-year adjusted operating margin is now anticipated in the 7-9% band (earlier guidance:11-13%).
The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025 end. The company aims to attain this objective through naturally occurring amortization. Also, it intends to utilize surplus cash and free cash flow to pay down prepayable debt. As of Jun 30, 2023, the carrier reduced its debt levels by more than $9 billion from peak levels in mid-2021.
Key Risks
The current scenario of rising fuel costs does not bode well for the airline. Oil price is moving northward mainly due to supply concerns triggered by the Russia-Ukraine war. Even though fuel price has come down from the highs witnessed earlier, it still remains at an elevated level. Fuel cost per gallon is projected in the range of $2.55-$2.65 for third-quarter 2023.
Zacks Rank
AAL currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) and Triton International Limited .
GATX, which presently carries a Zacks Rank #2 (Buy), has strengthened its railcar leasing operations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. Its current ratio (a measure of liquidity) was 3.83 at the end of second-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.