American Airlines: Strong Earnings Outlook Justifies Buy Rating Amidst Competitive Recovery

American Airlines (AAL – Research Report), the Industrials sector company, was revisited by a Wall Street analyst yesterday. Analyst David Vernon from Bernstein maintained a Buy rating on the stock and has a $21.00 price target.

David Vernon has given his Buy rating due to a combination of factors surrounding American Airlines’ financial performance and future outlook. Despite a soft start in the first quarter of 2024, where American Airlines missed earnings expectations slightly, the airline’s cost performance exceeded predictions. Importantly, the second quarter guidance provided by the company indicates a potential earnings per share that surpasses consensus estimates by 11%, suggesting a robust upcoming quarter at reasonable fuel costs. Moreover, while the company’s earnings for the first quarter were below expectations, it has maintained its full-year earnings guidance, which implies confidence in the airline’s ability to increase its premium capacity and improve financial performance throughout the year.

Furthermore, concerns around the rate of change in total revenue per available seat mile (TRASM) when compared to competitors were offset by positive factors specific to American Airlines’ recovery trajectory. Vernon argues that comparisons with peers may not be entirely appropriate due to unique aspects of each network’s recovery from the pandemic. He emphasizes that the key consideration for the stock is the company’s absolute earnings power, which is trending better than market expectations. This upward trend in earnings, coupled with a reasonable valuation and strategic initiatives, underpins Vernon’s optimistic stance on American Airlines and his Buy rating.

AAL’s price has also changed moderately for the past six months – from $11.040 to $14.130, which is a 27.99% increase.

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American Airlines (AAL) Company Description:

AMR Corp. provides scheduled passenger, freight and mail services. The company provides services through its wholly owned subsidiaries which include American Airlines, Inc., and AMR Eagle Holding Corporation. The American Airlines, Inc. provides scheduled jet service to various destinations throughout North America, the Caribbean, Latin America, Europe and Asia. AMR Eagle Holding Corporation owns two regional airlines which do business as ‘American Eagle’ which include American Eagle Airlines, Inc. and Executive Airlines, Inc. which in turn collectively known as the American Eagle carriers. It also contracts with independently owned regional airlines, which does business as AmericanConnection. The company was founded in October 1982 and is headquartered in Fort Worth, TX.