American Airlines Faces Stock Decline Amidst Turbulent Times

AAL stock has dropped 12.5% in a month, despite strong demand. The decline stems from lost business travelers and ongoing high labor costs. Investors are left questioning if now is the right time to buy as the airline faces tough guidance ahead.

Date: 18-02-2025

AI Rating: 4

Earnings per Share (EPS) Guidance
AAL's guidance for a loss per share of 20-40 cents in Q1 2025 significantly contrasts with the Zacks Consensus Estimate of earnings predicted at 4 cents per share. This disappointing EPS outlook might further impact investor confidence.

Full-Year 2025 Guidance
For full-year 2025, the airline projects adjusted EPS to be in the range of $1.7-$2.7, which falls below the consensus estimates. Such bearish guidance negatively affects stock sentiments and may lead to downward revisions of earnings estimates by analysts.

High Costs
The report highlights concerns about high non-fuel unit costs expected to rise in mid-single digits due to increased salaries and capacity adjustments. Elevated operational costs might compress profit margins and affect net income, making the overall business outlook seem bleak.

Recent Mishap
The collision involving an AAL regional jet that resulted in loss of lives might also lead to reputational damage, which could further deter business travelers. Such events typically have negative financial implications due to additional scrutiny and potential legal actions.

Debt Management and Partnership with Citigroup
AAL's successful reduction of total debt by $15 billion indicates a positive shift in financial management, which is appealing to long-term investors. Moreover, the new ten-year partnership with Citigroup could improve cash flows, strengthening the firm’s balance sheet moving forward.

Valuation
The report notes that AAL's current price-to-sales ratio of 0.18 suggests it is undervalued compared to industry averages. This valuation might present opportunities for long-term investors seeking to capitalize on recovery in the airline sector.

AAL's long-term growth projections of 30% against the industry’s average of 15.8% could attract investors despite near-term challenges. However, significant hurdles such as high labor costs and the slow recovery of corporate travel due to previous strategy missteps call for cautious investing until clearer signs of recovery are evident.

Stocks: AAL DAL UAL C