American Airlines Flies Through Q1 & Expects Upbeat Q2

Shares of air carrier American Airlines (AAL) soared almost 10%, after reporting upbeat first-quarter results and projecting a profit for the second quarter. AAL exceeded both earnings and revenue estimates on the heels of a rapid recovery in travel demand.

AAL said that it recorded an adjusted profit in March and expects profitability to continue in Q2, aided by continued demand momentum and fuel price forecast. Moreover, the month’s revenue also surpassed 2019 levels, setting a bullish tone for the airline industry, which also pushed the shares of other U.S. air carriers higher.

Shares ended the day up 3.8% at $20.22 on April 21. AAL stock has gained 7.8% year-to-date and remained flattish over the past year.

Better-Than-Feared Q1 Results

American Airlines reported a Q1 adjusted loss of $2.32 per share, which is 8 cents better than the analyst estimated loss of $2.40 per share. This figure was even better than the prior-year adjusted loss of $4.32 per share.

Similarly, revenue leaped 122% year-over-year to $8.9 billion and also outpaced Street estimates of $8.83 billion. The figure represents 84% of the Q1FY19 revenue.

Q1 passenger revenue of $7.81 billion jumped 145.6% year-over-year and cargo revenue of $364 million grew 15.4% compared to the same period last year.

American Airlines also reported steady growth in all of its key metrics compared to last year. Revenue passenger miles rose 97.2%, available seat miles grew 57.6%, and passenger load factor increased 14.9 points.

Additionally, the airline ended the quarter with $15.5 billion in liquidity and is on track to repay debt to the tune of $15 billion by the end of 2025. All of these factors point toward a healthy recovery for the airlines and a promising future trajectory.

Upbeat Q2 Guidance

Based on the current demand and booking trend, AAL expects Q2 capacity to be approximately 92%–94% of its Q2FY19 levels. Furthermore, its Q2 revenues are forecasted to be 6%–8% higher compared to the year-ago period.

CEO Comments

Delighted with the company’s performance, CEO Robert Isom said, “The work we have accomplished over the past two years—simplifying our fleet, modernizing our facilities, fine-tuning our network, developing new partnerships, rolling out new tools for customers and team members, and hiring thousands of new team members — has us very well positioned as the industry continues to rebound.”

Wall Streets’ Take

After the results were announced, research firm CFRA lifted the price target on the AAL stock to $24 (18.7% upside potential) from $20 while maintaining a Hold rating.

Overall, the stock has a Moderate Sell rating based on eight Holds and four Sells. The average American Airlines price target of $15.91 implies 21.3% downside potential to current levels.

AAL Stock Analysis

According to TipRanks’ Smart Score, American Airlines scores a poor two, indicating that the stock is very likely to underperform the market.

Notably, while hedge funds have decreased their holdings of AAL stock by 2.2 million shares in the last quarter, retail investors have increased their exposure to the stock by 5.7% in the last 30 days. Meanwhile, news sentiment is positive, and blogger sentiment is neutral on the stock.

Conclusion

While American Airlines is highly optimistic about its future trajectory and the overall recovery in the travel industry, big names on Wall Street and hedge funds are still quite pessimistic about its performance capability. All in all, it seems safer to sit on the sidelines and wait and watch.

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