On Monday, Jefferies, a global investment banking firm, updated its stance on shares of American Airlines (NASDAQ:AAL), increasing the stock's price target to $12.00 from the previous target of $11.00. The firm has decided to maintain a Hold rating on the shares.
The adjustment in the price target comes after an analysis of American Airlines' fourth quarter guidance, which indicates that the Total Revenue per Available Seat Mile (TRASM) is expected to remain flat sequentially and to decrease by 2% year-over-year. This is despite a 7% decline in forward indirect bookings in September, which is an improvement from the peak share loss of 11% in the second quarter and 10% in the third quarter.
Jefferies notes the improved industry backdrop as a contributing factor for the revision of its 2024 earnings per share (EPS) estimate for American Airlines towards the higher end of the guidance range, setting it at $1.50. This is a considerable increase from the midpoint of the airline's provided EPS guidance range of $1.35 to $1.60, which represents an approximate 50% raise at the midpoint.
The firm further emphasizes that a critical goal for American Airlines is to reestablish itself as the third major player among top U.S. network carriers. Achieving this objective involves the recovery of all $1.5 billion in indirect revenue lost by the end of 2025, as per the analyst's comments.
In other recent news, American Airlines has been the focus of several analyst adjustments following robust third-quarter earnings. The airline reported an adjusted pretax profit of $271 million, with earnings per share of $0.30, outperforming estimates. Total revenue reached $13.6 billion, marking a 1.2% year-over-year increase.
Citi, TD Cowen, and BofA Securities have all revised their price targets for the company. Citi raised its target to $16, noting optimistic projections for revenue per available seat mile growth in 2025, reduced fuel cost expectations, and the integration of third-quarter 2024 results into their evaluation.
TD Cowen maintained a Hold rating but increased the price target to $10, highlighting the airline's potential for network and long-term growth. BofA Securities also raised its target to $10, maintaining an Underperform rating due to valuation and net leverage considerations.
These recent developments reflect American Airlines' ongoing efforts to navigate operational challenges and achieve strategic goals, including plans to reduce total debt by at least $13 billion by the end of 2024 and growth in premium seating by 20% by 2026.
InvestingPro Insights
American Airlines' recent performance and future prospects align with several key metrics and insights from InvestingPro. The company's market capitalization stands at $8.64 billion, reflecting its significant presence in the Passenger Airlines industry.
InvestingPro data shows that American Airlines has a P/E ratio of 31.38, which could be considered high, especially when compared to its adjusted P/E ratio of 9.33 for the last twelve months as of Q3 2024. This discrepancy might suggest that the market is pricing in future growth expectations, aligning with Jefferies' increased price target and improved EPS estimates for 2024.
Two relevant InvestingPro Tips highlight that American Airlines has seen a strong return over the last month and three months, with price total returns of 13.75% and 23.82% respectively. This positive momentum supports Jefferies' more optimistic outlook on the stock. Moreover, InvestingPro notes that 8 analysts have revised their earnings upwards for the upcoming period, which corroborates the improved industry backdrop mentioned in the article.
It's worth noting that InvestingPro offers 11 additional tips for American Airlines, providing investors with a more comprehensive analysis of the company's financial health and market position.
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