雅虎香港財經 Here's Why You Should Retain American Airlines (AAL) Stock
American Airlines’ AAL robust air travel demand is boosting its top line. The company’s efforts to expand and upgrade its fleet are commendable. However, high operating costs, driven by a surge in labor and fuel costs, are hindering American Airlines’ bottom line.
Factors Favoring AAL
Strong air travel demand, particularly on the domestic front, is boosting AAL’s top line. In the first quarter of 2024, consolidated traffic (measured in revenue passenger miles) rose by 10.5% year over year, reflecting this boost. To meet the increased demand, capacity (measured in available seat miles) increased by 8.5% during the same period.
American Airlines’ debt reduction efforts are noteworthy. In the first quarter of 2024, the airline reduced its total debt by nearly $950 million, achieving more than $12 billion or higher than 80% of its $15 billion goal by 2025. AAL plans to use surplus cash and free cash flow to pay down prepayable debt, having generated $2.2 billion in operating cash flow and $1.4 billion in free cash flow in the first quarter.
To meet the strong air travel demand, American Airlines is expanding its network. In 2022, the carrier connected Seattle with Bengaluru and forged agreements with Gol Linhas and Boom Supersonic to modernize its fleet with up to 20 Overture planes, with an option for 40 more.
Key Risks
Rising fuel costs are hindering AAL’s bottom line. This trend is primarily due to the ongoing production cuts adopted by major oil-producing nations and geopolitical tensions. Management expects fuel prices between $2.70 and $2.80 per gallon for the second quarter of 2024. Our estimate is currently pegged at $2.76 per gallon.
The northward movement in expenses on labor is also hurting AAL's bottom line. Total operating expenses, excluding special items and fuel, increased 11% to $9.5 billion in the first quarter of 2024. Wages and benefits rose by 17.8% to $3.9 billion in the same time.
American Airlines' current ratio (a measure of liquidity) stood at 0.6 at the end of the first quarter of 2024, raising liquidity concerns. A current ratio of less than 1 indicates that the company does not have enough cash to meet its short-term obligations.
Shares of AAL have declined 31.9% in the past year compared to its industry’s growth of 18.4% in the same period.
Image Source: Zacks Investment Research
Zacks Rank
American Airlines currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include SkyWest SKYW and Kirby Corporation KEX, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
SkyWest has an expected earnings growth rate of 787% for the current year.
SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 104.2% in the past year.
KEX has an expected earnings growth rate of 42.5% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 58.8% in the past year.
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American Airlines Group Inc. (AAL) : Free Stock Analysis Report
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