Back to top

Bear Of The Day: American Airlines (AAL)

Read MoreHide Full Article

Performance

American Airlines (AAL - Free Report) is down almost 20% over the past 52-weeks and analysts continue to adjust earnings downward. Over the past 90 days AAL 2019 earnings have been adjusted down by 9%, and 2020 EPS estimates have been adjusted down 8% in the same time frame. The most accurate analysts have estimates even lower than the consensus. The current outlook for AAL looks grim pushing it into Zacks Rank #5 (Strong Sell).

American Airlines Group Inc. Price, Consensus and EPS Surprise

American Airlines Group Inc. Price, Consensus and EPS Surprise | American Airlines Group Inc. Quote

Reasons to Sell

American Airlines currently has 24 Boeing 737 MAX (BA - Free Report) planes making up 2% of its fleet, the second most in the US behind Southwest (LUV - Free Report) . The Boeing MAX is currently grounded until August when they will reassess this timeline and likely add another 3-9 months until these planes can fly again. American Airlines will likely have a 1% loss in capacity, according to management guidance, until 2020. This may not sound like a lot, but when you take into account the efficient margins that the MAX was expected to bring to the table the impact is multiplied.

Rising oil prices are the most substantial concern for any airline, with it being their largest variable cost. Oil is up over 30% this year so far and could continue. OPEC agreed to cut 1.2 million BPD in supply, turmoil in Venezuela is killing their oil production and Iran oil sanctions is going to be pulling over 1 million BPD off the market starting tomorrow. Oil prices are subject to continue to increase if these supply concerns aren't fully priced in. This increase will have a materially adverse effect on American Airline’s bottom line.

What concerns me most about this stock is its negative earnings growth. American Airlines has had consistent to growing revenue since 2015 but has lost almost 70% on its bottom line in the past 3 years with margins falling drastically.

Reasons to Hold

American Airlines has substantially underperformed the market & the airline industry, but this stock may be oversold. Currently, AAL is trading at a P/E of 6.23x significantly below the industry average of 10.36x. Price to sales and price to cash-flow are also both considerably below the industry average. Unfortunately, AAL has all the momentum pushing it down. This downward momentum is subject to continue with the negatively adjusted guidance and oil price increases but look to buy AAL below $30. From the analyst reports that I have examined many of them are setting a long term price target of $41. I wouldn’t short this stock but watch it continue to fall and maybe buy on an upswing.

 

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.


See 7 breakthrough stocks now>>




In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Southwest Airlines Co. (LUV) - free report >>

The Boeing Company (BA) - free report >>

American Airlines Group Inc. (AAL) - free report >>

More from Zacks Bear of the Day

You May Like

Published in