Yahoo Finance Here's Why You Should Retain American Airlines (AAL) Stock Now
American Airlines AAL is benefiting from buoyant air-travel-demand scenario, particularly on the domestic front. However, escalating operating costs and low liquidity are worrisome.
Factors Favoring AAL
Owing to upbeat air-travel demand, operating revenues in first-quarter 2023 increased 37% year over year. Passenger revenues, accounting for the bulk of the top line (91.1%), increased to $11,103 million from $7,818 million a year ago.
The anticipated air-travel-demand swell during the summer season and low fuel costs led to the recently issued bullish outlook for second-quarter 2023.
American Airlines, currently carrying a Zacks Rank #3 (Hold), now expects total revenue per available seat miles (a measure of unit revenue) to decline 1-3% from second-quarter 2022 actuals (earlier estimate: a decline of 2-4%). Adjusted operating margin is now anticipated in the 12.5-14.5% band (earlier guidance: 11-13%). Average fuel cost per gallon is now expected in the range of $2.55-$2.65 (prior guidance: $2.65-$2.75).
Available seat miles (a measure of capacity) are still estimated to increase 3.5-5.5% year over year. AAL projects earnings per share (excluding net special items) in the $1.45-$1.65 range (prior view: $1.20-$1.40).
Backed by robust air-travel demand, American Airlines is constantly looking to add routes and broaden network. The carrier's debt-reduction efforts are impressive as well. Management aims to reduce its debt by $15 billion by 2025 end.
Key Risks
Despite declining fuel costs, expenses on labor continue to be high. AAL expects non-fuel unit costs to increase 3.5-5.5% year over year in second-quarter 2023. AAL continues to grapple with pilot shortage in the face of a strong rebound in air-travel demand.
American Airlines’ current ratio (a measure of liquidity) at the end of first-quarter 2023 was 0.72. A current ratio of less than 1 is not desirable as it implies that the company doesn't have enough liquid assets to cover its short-term liabilities.
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Airline industry are Copa Holdings CPA and Allegiant Travel Company ALGT. Each stocks is currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased 28.5% from first-quarter 2019 levels due to higher yields.
CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% from first-quarter 2019 levels on higher cargo volumes and yields.
Copa Holdings' fleet modernization and cost-management efforts are commendable. The Zacks Consensus Estimate for current-year earnings has been revised 21.05% upward over the past 60 days.
Allegiant is seeing a steady recovery in air-travel demand. In first-quarter 2023, operating revenues grew 29.9% on a year-over-year basis. Passenger revenues, accounting for 93.7% of the top line, increased 31.3% on a year-over-year basis.
Allegiant's fleet-modernization efforts are encouraging. The Zacks Consensus Estimate for ALGT's current-year earnings has been revised upward by 42.37% in the past 60 days.
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Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
