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Bear of the Day: American Airlines (AAL)

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American Airlines Group Inc. (AAL - Free Report) has seen its stock price plummet 24% over last the six months, and things don’t look like they are going to get much better for the airline powerhouse.

Second Quarter Overview

American’s adjusted Q2 earnings of $1.63 per share came in above our Zacks Consensus Estimate by 4 cents, but they marked a massive decline from the year-ago period’s $2.04 per share. The airline pointed to higher fuel costs as one of the biggest reasons it saw its quarterly earnings slip.

AAL’s operating income also fell from $1.60 billion in the second quarter of 2017 to $1.03 billion. American’s Q2 revenues did climb by roughly 3.6% to reach $11.64 billion, which still missed our quarterly estimate.

American, like United (UAL - Free Report) , Delta (DAL - Free Report) and other airlines, reported strong quarterly passenger totals, but the companies weren’t able to raise their prices quickly enough to make up for what was a roughly 55% increase in fuel costs from a year ago—39.6% for American specifically.

The company also lowered its guidance for its third-quarter capacity growth rate by roughly 0.6% and its Q4 capacity by around 1%. Investors should note that American still expects its Q3 capacity to jump 3.3%, while the firm projects its fourth-quarter capacity to be up 1.6%

Price Movement

Investors will see that shares of AAL are up just around 4% over the last three years, which lags the S&P 500 by over 40%. The past 12 months have been even less kind to American stock, with shares down nearly 9%. Since the start of 2018, AAL stock has plummeted over 21%—against the S&P’s roughly 8.6% climb.

 

 

Outlook & Earnings Revisions

Now let’s take a look at what to expect from American for the rest of the year. Our current Zacks Consensus Estimate is calling for the company’s third-quarter revenues to pop by 6.5% to hit $11.58 billion. Investors also shouldn’t be disappointed to note that AAL’s fiscal year revenues are projected to jump by 5.6% to reach $44.58 billion. However, the company’s earnings outlook appears rather dismal at the moment.

AAL’s adjusted quarterly earnings are projected to fall by nearly 17% to $1.18 per share. Meanwhile, American’s fiscal year EPS figure is expected to sink by roughly 4.5% to touch $4.66.

Investors should be even less pleased to see that AAL has received six downward earnings estimate revisions for its third quarter over the last 60 days, against zero upward changes. Worst still, American has seen 10 full-year earnings revisions and eight for its following fiscal year during this same time period, with nearly 100% agreement to the downside.

Bottom Line

American is currently a Zacks Rank #5 (Strong Sell) on the back of nearly completely negative earnings revision activity. This helps show investors that analysts are less positive about AAL’s future earnings outlook, which means it might be best to stay away from American stock right now.

For investors interested in the airline space, they could consider SkyWest, Inc. (SKYW - Free Report) , Air France-KLM SA (AFLYY - Free Report) , or Swire Pacific Ltd. (SWRAY - Free Report) , which all currently boast a Zacks Rank #1 (Strong Buy) or #2 (Buy).

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