Analyst unveils new American Airlines stock price target (many will be unhappy)

Published 1:24 pm Monday, January 22, 2024

By Rob Lenihan

: general-views-of-new-york

American Airlines (AAL) – Get Free Report has been around so long that it can trace its roots to the legendary aviator Charles Lindbergh.

Running an airline a tough racket, no doubt, with enough turbulence some days to make you want to curse out the Wright Brothers.

In 2011, American filed for bankruptcy protection to cut labor costs in the face of high fuel prices and dampened travel demand.

Two years later, the company emerged from bankruptcy in what many observers at the time said was the most successful Chapter 11 reorganization of an airline.

An American Airlines stock analyst has issued a new forecast.

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Last May, American saw its northeast partnership with a JetBlue (JBLU) – Get Free Report scrubbed by a federal judge in Boston, who said that the government had proved the arrangement reduced competition in the airline industry.

American Americans asked a U.S. appeals court to reverse the decision in December.

“If left unchecked, the district court’s decision will discourage fruitful and lawful collaboration that benefits consumers through increased output, decreased prices, and improved product quality,” the airline said in a brief.

JetBlue, you may remember, got its wings recently clipped by a federal judge when it tried to merge with Spirit Airlines (SAVE) – Get Free Report.

Labor challenges

American, which is scheduled to report fourth quarter and full-year results on Jan. 25., is also facing some headwinds with its unionized employees.

While the Fort Worth, Texas-based company’s airline’s pilots secured a new four-year agreement and $9 billion collective pay increase package in August, it has yet to reach an agreement with the union representing its 26,000 flight attendants.

On Jan. 18, the Association of Professional Flight Attendants (APFA) filed its second request for release in a letter to the National Mediation Board on Thursday. The board previously rejected the prior request, which was made on Nov. 20.

In a letter to the board, APFA president Julie Hedrick said that American had failed to respond to APFA’s proposal that was passed almost six months ago and said that “they do not intend to offer another economic proposal.”

“Simply put, we are deadlocked on the key issue of economics, and no amount of further bargaining will change that.”

In a statement, American said, “We strongly disagree that a release from federal mediation is warranted at this time as American continues to negotiate with APFA in good faith.”

“Our focus remains unchanged: Reaching an agreement quickly — one that ensures our flight attendants are paid as well as the best-paid flight attendants in the industry,” the airline said.

The airline industry overall appears to be on the upswing.

The International Air Transport Association said that it expects the sector’s net profits to reach $25.7 billion in 2024 on a 2.7% net profit margin, a slight improvement from this year’s upwardly revised projections.

“Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviation’s resilience,” Willie Walsh, the group’s director general.

Will 2024 be a ‘bridge year’ for airlines?

And speaking of resilience, Wolfe Research on Jan. 22 raised its rating on American Airlines to outperform from peer perform with a price target of $17.

Since that price target is about 25% higher than it closed on Jan. 22, it may disappoint many who believe that the airline could face stiff headwinds. Over 58 million shares of American Airlines stock are held short, representing over 10% of its share float, or shares available for trading.

“Our Airline Index has underperformed the S&P 500 for 4 straight years, and every airline stock underperformed last year into accelerating capacity growth and weakening pricing,” the firm said in a research note, according to Investing.com.

Wolfe said it sees mixed trends entering 2024, but potential for revenue per available seat mile (RASM) to inflect back positive year over year later this year as capacity growth slows.”

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“Thus, we view 2024 as a bridge year for airlines as EPS hopefully troughs,” the firm said, adding that as a result, the firm is “growing a bit more positive on airlines.”

Wolfe Research said that American is the only airline that hit its capacity and cost per available seat-mile (CASMx) guidance in 2023, while it has “no Max-9 exposure and less risk from Tel Aviv in 1Q and tough transatlantic comps in 2Q.”

In March, Wolfe Research analysts raised the company from underperform, where it had been for at least the past three years, maintaining that it was time to stop selling American Airlines’ shares.

In July, American raised its outlook for 2023 after a strong start to the peak travel season, CNBC reported, saying it expected to earn between $3 and $3.75 a share for the full year, adjusting for one-time items, up from an earlier forecast to earn about $2.50 to $3.50.

In October, American reported quarterly earnings of 38 cents per share, topping analysts’ consensus estimates of 26 cents. Revenue totaled $13.48 billion during the quarter, compared with the consensus estimate of $13.51 billion.

“No network airline has operated more reliably than American over the past 15 months,” CEO Robert Isom told analysts. “Our operational performance is better than ever and it’s because of our steadfast focus on reliability and strong execution in an increasingly complex environment.”