American Airlines Group, Inc. (AAL) Buy or Sell Stock Guide
Are you looking for the analysis of American Airlines Group, Inc. (AAL) stock? Are you wondering what the bulls and the bears say about it?
If so, you came to the right place. In this stock guide, we will share with you 12 reasons to buy and 10 reasons to sell AAL stock. You’ll get a perspective on what the bulls and the bears say about it.
The analysis below may be also helpful to you if you have any of the following questions about AAL stock:
- Is AAL a buy or a sell?
- Should I sell or hold AAL stock today?
- Is AAL a good buy / investment?
- What are AAL analyst opinions, recommendations and ratings?
Let’s start with the bull case. Here are the reasons to buy AAL stock:
1. American has some of the lowest load factors in the U.S. airline industry, and expanding these will drive revenue opportunities for the carrier.
2. Management has executed its integration with US Airways rather seamlessly and will be able to squeeze further improvements out of the combined entity.
3. American’s younger fleet will require less maintenance and features improved fuel efficiency, both of which will keep a lid on unit costs.
4. American Airlines reported better-than-expected earnings per share and revenues in the fourth quarter of 2017. Additionally, both metrics improved on a year-over-year basis. Strong demand for air travel coupled with improving yields aided results.
5. We are also impressed by the company’s efforts to reward shareholders through share buybacks and dividend payments. During 2017, the company returned $1.7 billion to shareholders through dividends and buybacks. Furthermore, the carrier also declared a dividend of 10 cents per share.
6. The company's employee-friendly attiude also encourages us. Employees at American Airlines earned more than $240 million in 2017, as part of the company's profit sharing scheme. We are impressed by its efforts to expand.
7. AAL forward dividend yield is 1.26%, higher than the industry (0.68%) and sector (0.45%) forward dividend yields. See AAL forward dividend chart.
8. AAL forward P/E ratio is 5.20, and it’s low compared to its industry peers’ P/E ratios. See AAL forward P/E ratio chart.
9. AAL Price/Sales ratio is 0.33, and it’s low compared to its industry peers’ P/S ratios. See AAL forward Price/Sales ratio chart.
10. AAL PEG ratio (P/E adjusted for growth) is 0.29, and it’s low compared to its industry peers’ PEG ratios. See AAL PEG chart.
11. AAL average analyst rating is Buy. See AAL analyst rating chart.
12. AAL average analyst price target ($44.26) is above its current price ($34.81). See AAL price target chart.
Now that you understand the bull case, let’s look at the reasons to sell AAL stock (i.e., the bear case):
1. American’s strategy of operating newer, more fuel-efficient aircraft simply doesn’t make sense in an era of depressed oil prices.
2. All the obvious postmerger cost savings have been identified, and the combined American-US Airways entity will not be able to drive further efficiency gains.
3. American and other U.S. airlines will continue to bid away profits from lower fuel prices, pushing fares down and depressing profitability.
4. Consolidated cost per available seat miles (excluding special items and fuel) is expected to increase 4% in the first quarter of 2018. With fuel costs also on the rise, the bottom line is likely to be significantly hurt in the first quarter due to escalating operating expenses.
5. In December 2017, pilots at the carrier were allowed to go on vacation during the busy Christmas week, thanks to a scheduling glitch. This would have upset the travel plans of multiple passengers during the period. American Airlines managed to avert the crisis by offering pilots twice their normal hourly pay to operate flights during the period.
6. American Airlines is a highly leveraged company. This is indicated by the fact that the ratio of its long-term debt-to-equity (expressed as a percentage) is currently well over 500. This compares unfavorably to the figure of 86.3 for its industry and also the S&P 500 index, for whom the measure reads 94%.
7. Capacity overexpansion is also a problem at American Airlines. Load factor (percentage of seats filled by passengers) has been pressurized due to capacity expansion outweighing traffic growth. In fact, capacity (system) in 2018 is projected to increase 2.5% year over year.
8. AAL quarterly revenue growth was 3.10%, lower than the industry and sector average revenue growth (7.03% and 4.74%, respectively). See AAL revenue growth chart.
9. AAL profitability is declining. The YoY profit margin change was -1.38pp. See AAL profitability chart.
10. AAL short share of float is 5.68%. The stock is much more frequently shorted than the average industry, sector or S&P 500 stock. See AAL short share of float chart.
Now let's look at the key statistics for AAL:
|Average Price Target / Upside||$44.26 / 32.61%|
|Average Analyst Rating||Buy|
|Number of Employees||128,900|
|Forward P/E Ratio||5.63|
|YoY Quarterly Revenue Growth||3.1%|
What are your thoughts on AAL?
If you liked this analysis, check out Buy or Sell Stock Guides for other stocks.