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AAL stock is trading at a discount with a forward 12-month Price/Sales of 0.16X compared with the industry’s 1.15X.
Image Source: Zacks Investment Research
AAL is cheaper than Delta Air Lines (DAL - Free Report) and United Airlines (UAL - Free Report) . AAL’s cheap valuation is attractive for investors. However, is it worth buying at current prices?
Let’s dig deeper to find out.
AAL’s Strong Q3 Results & Bullish Guidance
Last month, American Airlines reported better-than-expected earnings per share and revenues, driven by strong air travel demand. American Airlines’ third-quarter 2024 earnings (excluding 53 cents from non-recurring items) of 30 cents per share beat the Zacks Consensus Estimate of 13 cents.
Operating revenues of $13.65 billion surpassed the Zacks Consensus Estimate of $13.49 billion and increased 1.2% year over year. The airline lifted its earnings per share forecast for 2024, citing improved pricing power as the industry cut down excess capacity in the domestic market. AAL’s management now expects current-year adjusted earnings per share in the $1.35-$1.60 range (earlier expectation was in the range of 70 cents-$1.30).
Trump's Re-election: A Positive for AAL
The anticipation of a more relaxed regulatory environment under Trump's leadership will likely lead to lesser scrutiny, which is expected to boost mergers and acquisitions in the industry. This is a positive for airline stocks, including AAL.
We note that during Trump’s first tenure as the U.S. President, the Department of Justice was less aggressive in challenging airline mergers and consolidations compared with the Biden administration. The deregulation policies evident during Trump’s first shot at the U.S. presidency were in line with the demands made by airline executives for reduced oversight and greater business flexibility.
Owing to Trump’s business-friendly stance, the Northeast Alliance between American Airlines and JetBlue Airways (JBLU - Free Report) might return. We remind investors that in 2023, a federal judge agreed with the U.S. Justice Department that the alliance resulted in higher prices for consumers. Consequently, both companies were ordered to part ways and end the alliance.
JBLU and AAL appealed against the ruling but a few days ago, a United States Appeals Court judge did not overturn the previous ruling. AAL is reportedly reviewing the ruling and considering options. AAL might be hoping that once Trump assumes office, the alliance is likely to be revived, given the expectations of a more relaxed regulatory atmosphere under his leadership.
Favorable Readings for AAL Stock
Driven by upbeat air-travel demand, low fuel costs and the optimism following Trump’s re-election, AAL shares have performed better than its industry over the past three months.
Three-Month Price Comparison
Image Source: Zacks Investment Research
Due to the tailwinds, earnings per share estimates have been moving northward.
Image Source: Zacks Investment Research
Some Challenges to be Mindful Of
The northward movement in labor-related expenses is hurting American Airlines’ bottom line, thus challenging its financial stability. Labor costs are surging mainly as a result of the deal inked with pilots last year. The bottom line contracted in the third quarter of 2024 due to high labor costs. We note that expenses on wages and benefits rose 9.4% in the first nine months of 2024.
AAL’s exit from the coveted S&P 500 Index on Sept. 23, 2024, reflects AAL’s erosion of market capitalization over time. Despite the recent positives, highlighted in the write-up, AAL’s market capitalization, as of Nov. 8, 2024, was $9.07 billion, down drastically from around $37 billion in December 2014.
We are also concerned about its high debt levels. The company’s times interest earned ratio of 1.5 at 2023-end compares unfavorably with the industry’s ratio of 4.6.
Long-Term Debt to Capitalization
Image Source: Zacks Investment Research
What Should Investors Do With AAL Shares?
There is no doubt that the stock is attractively valued. The buoyant air travel demand scenario serves AAL well. However, given the headwinds mentioned in the write-up, we believe that it is not at all advisable to buy this Zacks Rank #3 (Hold) stock currently.
Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
Image: Shutterstock
AAL Stock Trading Lower Than Industry at 0.16X P/S: Time to Buy?
American Airlines (AAL - Free Report) is one of the cheaper stocks in the broader Zacks Transportation - Airline industry with a Value Score of A.
AAL stock is trading at a discount with a forward 12-month Price/Sales of 0.16X compared with the industry’s 1.15X.
AAL is cheaper than Delta Air Lines (DAL - Free Report) and United Airlines (UAL - Free Report) . AAL’s cheap valuation is attractive for investors. However, is it worth buying at current prices?
Let’s dig deeper to find out.
AAL’s Strong Q3 Results & Bullish Guidance
Last month, American Airlines reported better-than-expected earnings per share and revenues, driven by strong air travel demand. American Airlines’ third-quarter 2024 earnings (excluding 53 cents from non-recurring items) of 30 cents per share beat the Zacks Consensus Estimate of 13 cents.
Operating revenues of $13.65 billion surpassed the Zacks Consensus Estimate of $13.49 billion and increased 1.2% year over year. The airline lifted its earnings per share forecast for 2024, citing improved pricing power as the industry cut down excess capacity in the domestic market. AAL’s management now expects current-year adjusted earnings per share in the $1.35-$1.60 range (earlier expectation was in the range of 70 cents-$1.30).
Trump's Re-election: A Positive for AAL
The anticipation of a more relaxed regulatory environment under Trump's leadership will likely lead to lesser scrutiny, which is expected to boost mergers and acquisitions in the industry. This is a positive for airline stocks, including AAL.
We note that during Trump’s first tenure as the U.S. President, the Department of Justice was less aggressive in challenging airline mergers and consolidations compared with the Biden administration. The deregulation policies evident during Trump’s first shot at the U.S. presidency were in line with the demands made by airline executives for reduced oversight and greater business flexibility.
Owing to Trump’s business-friendly stance, the Northeast Alliance between American Airlines and JetBlue Airways (JBLU - Free Report) might return. We remind investors that in 2023, a federal judge agreed with the U.S. Justice Department that the alliance resulted in higher prices for consumers. Consequently, both companies were ordered to part ways and end the alliance.
JBLU and AAL appealed against the ruling but a few days ago, a United States Appeals Court judge did not overturn the previous ruling. AAL is reportedly reviewing the ruling and considering options. AAL might be hoping that once Trump assumes office, the alliance is likely to be revived, given the expectations of a more relaxed regulatory atmosphere under his leadership.
Favorable Readings for AAL Stock
Driven by upbeat air-travel demand, low fuel costs and the optimism following Trump’s re-election, AAL shares have performed better than its industry over the past three months.
Three-Month Price Comparison
Due to the tailwinds, earnings per share estimates have been moving northward.
Some Challenges to be Mindful Of
The northward movement in labor-related expenses is hurting American Airlines’ bottom line, thus challenging its financial stability. Labor costs are surging mainly as a result of the deal inked with pilots last year. The bottom line contracted in the third quarter of 2024 due to high labor costs. We note that expenses on wages and benefits rose 9.4% in the first nine months of 2024.
AAL’s exit from the coveted S&P 500 Index on Sept. 23, 2024, reflects AAL’s erosion of market capitalization over time. Despite the recent positives, highlighted in the write-up, AAL’s market capitalization, as of Nov. 8, 2024, was $9.07 billion, down drastically from around $37 billion in December 2014.
We are also concerned about its high debt levels. The company’s times interest earned ratio of 1.5 at 2023-end compares unfavorably with the industry’s ratio of 4.6.
Long-Term Debt to Capitalization
What Should Investors Do With AAL Shares?
There is no doubt that the stock is attractively valued. The buoyant air travel demand scenario serves AAL well. However, given the headwinds mentioned in the write-up, we believe that it is not at all advisable to buy this Zacks Rank #3 (Hold) stock currently.
Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.