Stock News Hubb
Advertisement Banner
  • Home
  • Stock Market & Insights
  • Investment
  • Contact
No Result
View All Result
  • Home
  • Stock Market & Insights
  • Investment
  • Contact
No Result
View All Result
No Result
View All Result
Home Stock Market & Insights

American Airlines (AAL) Stock: Flying Higher With Or Without You

admin by admin
January 13, 2023
in Stock Market & Insights


OntheRunPhoto

In no huge surprise to people following the research here, American Airlines Group (NASDAQ:AAL) pre-announced a strong quarter as the earnings season starts to ramp up. The airline remains priced for the next Covid shutdown while profits are booming. My investment thesis remains ultra Bullish on the airline stock due to the vast disconnect with the stock price and the current EPS in just Q4 alone.

Finviz Chart

Source: FinViz

No Surprise

The market is likely surprised that American Airlines reported a blockbuster quarter, but investors shouldn’t be surprised. Delta Air Lines (DAL) has recently discussed topping 2019 financial results and Southwest Airlines (LUV) just reinstated a big dividend. The sector keeps telling the market that boom times are ahead, but the market keeps ignoring these strong results.

Prior to the open on Thursday, American Airlines provided the following strong updated financial results for Q4’22:

  • Revenue: 16% to 17% as compared to Q4 2019, up from 11% to 13% in previous forecasts
  • Adjusted EPS: range from $1.12 to $1.17, about double the prior forecast of $0.50 to $0.70 and well above the consensus of $0.58
  • Adjusted operating margin: guidance was also hiked from a range of 5.5% to 7.5% to a 10.25% to 10.5% expectation

The stock was recently trading in the $12s, yet American Airlines just reported a quarter of ~$1.15 per share in earnings, roughly equivalent to 10x where the stock traded. In early trading, the stock is only barely topping $16.

Price data

Source: Seeking Alpha

The typical excuse for not investing in airlines are the higher debt levels and share dilution from trying to survive Covid. American Airlines had to issue a ton of shares to survive in order for the company to now thrive.

The airline ended Q3’22 with a net debt position of $25.7 billion. While the number is still much higher than pre-Covid, investors don’t always understand that American Airlines has a PP&E balance in excess of net debt by $11.8 billion.

Chart
Data by YCharts

In essence, the legacy airline has a large debt level due in part to purchasing a ton of airplanes prior to Covid shutdowns. American Airlines already has met half of their goal of reducing total debt levels by $15 billion by the end of 2025.

With 716 million diluted shares outstanding, the airline is forecasting to earn ~$823 million in the holiday quarter. Remember, the December quarter isn’t even close to the best quarter for the airline and American Airlines only earned a similar $1.15 in Q4’19 in a sign of the massive rebound by the airline already. The airline has completely recovered from the shutdowns despite higher interest expenses and the increased share counts.

Huge Hikes Ahead

The crazy part of the investment story is that analysts only forecast American Airlines generating a 2023 EPS of $1.56. The consensus target only jumps up to $2.60 in the following years.

Chart
Data by YCharts

As mentioned in prior research, American Airlines has earnings power of $3 to $4 per share. The ability of the airline to survive and thrive despite a tough year where fuel costs soared should provide more confidence to investors.

The market will correctly question whether the Q4’22 numbers are repeatable next year. The airline likely benefitted somewhat from the network issues of competitor Southwest Airlines.

While this number isn’t likely repeatable next year, analysts only have the airline earning $1.56 in 2023 with the Q4 estimate at just a meager $0.30. The more income American Airlines makes now, the more cash flow the airline will generate to repay debt to lower interest expenses and boost profits in the future.

Takeaway

The key investor takeaway is that American Airlines is ridiculously priced with the profits now being generated. The airline is executing far better than most market participants expected, but the stock still gets no respect.

Investors should use the current stock price to buy a stock trading at 5x normalized profits of $3+ per share.

If you’d like to learn more about how to best position yourself in under valued stocks mispriced by the market heading into a 2023 Fed pause, consider joining Out Fox The Street. 

The service offers model portfolios, daily updates, trade alerts and real-time chat. Sign up now for a risk-free, 2-week trial to start finding the next stock with the potential to generate excessive returns in the next few years without taking on the out sized risk of high flying stocks. 



Source link

Previous Post

My 2 Favourite TSX Growth Stocks for 2023

Next Post

‘Super lame,’ says Gemini co-founder Tyler Winklevoss about SEC charges

Next Post

'Super lame,' says Gemini co-founder Tyler Winklevoss about SEC charges

Recommended

OXLC: Let’s Give Credit Where It Is Due

1 month ago

November job growth slowed but will still show strength despite layoffs

2 months ago

© 2022 Stock News Hubb All rights reserved.

Use of these names, logos, and brands does not imply endorsement unless specified. By using this site, you agree to the Privacy Policy and Terms & Conditions.

Navigate Site

  • Home
  • Stock Market & Insights
  • Investment
  • Contact

Newsletter Sign Up.

No Result
View All Result
  • Home
  • Stock Market & Insights
  • Investment
  • Contact

© 2022 Stock News Hubb All rights reserved.