On Thursday, TD Cowen adjusted its outlook on American Airlines (NASDAQ:AAL) shares, raising the price target from $7.00 to $9.00, while maintaining a Hold rating on the shares. The adjustment comes as the firm anticipates the airline to release its third-quarter results later in the week, with expectations set low for both the third and fourth quarters.
The updated price target reflects a more optimistic view, albeit cautiously, as the analyst predicts American Airlines' upcoming financial results and guidance will surpass the current low market expectations. The report and earnings call are scheduled for the same day in the latter part of the week of October 20, 2024.
Despite the raised price target, the firm expressed ongoing concerns about long-term challenges that American Airlines may face. These concerns include issues related to the airline's network and product offerings, as well as management's ability to bridge the performance gap with its competitors.
The analyst's commentary also highlighted skepticism regarding American Airlines' financial outlook, specifically doubting the airline's ability to generate positive free cash flow (FCF) in 2025 or 2026. This skepticism is rooted in the broader operational challenges that the airline industry faces, which could impact American Airlines' future financial health.
Investors and market watchers are now looking ahead to the company's third-quarter earnings, which will provide further insights into American Airlines' operational performance and management's strategies for addressing the identified concerns.
In other recent news, American Airlines has requested a delay in the resumption of two daily flights to China due to persistent low travel demand. The airline, which currently operates a single daily flight between Dallas and Shanghai, has not disclosed a specific timeline for the delay. Other major airlines, including Delta Air Lines (NYSE:DAL) and United Airlines, have made similar requests.
In another development, American Airlines' flight attendants have approved a new five-year contract with immediate wage increases and improved working conditions. According to the Association of Professional Flight Attendants, the contract includes a new compensation structure for extended waits between flights and payment for boarding time.
Meanwhile, the U.S. Department of Transportation (DOT) has initiated a probe into the loyalty and frequent flyer programs of the nation's four largest airlines, including American Airlines. The inquiry aims to protect consumers from potentially unfair or deceptive practices and maintain a competitive market.
On the labor front, a series of strikes and negotiations have taken place across various industries, affecting companies like General Motors (NYSE:GM), Ford (NYSE:F), and Stellantis (NYSE:STLA). The International Longshoremen's Association initiated a significant strike at major U.S. ports, while members of the Writers Guild of America approved a new contract with major studios.
Finally, despite a surge in summer travel, U.S. airlines have maintained a relatively low cancellation rate this year. According to the U.S. Department of Transportation, the cancellation rate stands at 1.6% of all flights for the year, which is a slight increase from the 1.5% rate in 2023.
InvestingPro Insights
Recent InvestingPro data provides additional context to TD Cowen's analysis of American Airlines (NASDAQ:AAL). The company's market capitalization stands at $7.05 billion, reflecting its significant presence in the Passenger Airlines industry. However, the stock has taken a substantial hit over the last week, with a 1-week price total return of -8.91%, aligning with the cautious stance maintained by analysts.
InvestingPro Tips highlight that American Airlines operates with a significant debt burden, which may contribute to the analyst's concerns about the company's ability to generate positive free cash flow in the coming years. Additionally, the tip indicating that short-term obligations exceed liquid assets underscores the financial challenges the airline faces.
Despite these hurdles, InvestingPro Tips also reveal that analysts predict the company will be profitable this year. This projection could explain TD Cowen's decision to raise the price target, suggesting potential upside despite ongoing industry challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for American Airlines, providing a deeper understanding of the company's financial position and market performance.
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