On Wednesday, Deutsche Bank kept its Buy rating on American Airlines (NASDAQ:AAL) but noted a significant revision in the company's financial outlook for the June quarter. The airline now expects a year-over-year unit revenue decline of 5% to 6%, a steeper drop than the previously forecasted 1% to 3%.
This unit revenue miss is substantial, with an estimated impact of approximately $150 million in revenue for each percentage point. Consequently, Deutsche Bank has reduced its revenue projection for the June quarter from $14.9 billion to $14.4 billion, indicating a modest year-over-year growth of 2.4%, down from the earlier estimate of 6%.
The bank's analyst pointed out that despite the revenue shortfall, American Airlines' better-than-expected cost performance and lower fuel prices provide some relief. The unit costs excluding fuel are projected to be flat to up 1%, an improvement from the 1% to 3% range previously expected. Additionally, fuel costs are anticipated to be around $2.75 per gallon, a decrease of 10 cents at the midpoint.
However, these positive factors are not enough to fully counterbalance the lower revenue. As a result, the analyst has adjusted the June quarter diluted earnings per share (EPS) forecast from $1.30 to $1.15, translating to an underlying operating margin of 10.1%. The full-year EPS forecast has also been revised downward from $2.30 to $2.10, corresponding to an underlying operating margin of 6.2%.
Importantly, the analyst highlighted that American Airlines' investor update did not reconfirm the company's full-year 2024 EPS guidance of $2.25 to $3.25. Deutsche Bank's revised full-year EPS estimate now stands 7% below the low end of the airline's guidance range. This adjustment reflects a cautious stance on American Airlines' financial performance in light of the updated June quarter outlook.
InvestingPro Insights
As American Airlines (NASDAQ:AAL) navigates a challenging financial landscape, the latest data from InvestingPro underscores the airline's current market position. With a market capitalization of $8.82 billion and a P/E ratio adjusted for the last twelve months as of Q1 2024 at 5.66, American Airlines is trading at a valuation that reflects a mix of its operational challenges and future growth prospects. The company's revenue growth for the last twelve months stood at 1.74%, indicating modest expansion in a competitive industry.
An InvestingPro Tip suggests that American Airlines operates with a significant debt burden, which is an essential factor for investors to consider, especially when the company is facing a unit revenue decline. Additionally, analysts have revised their earnings upwards for the upcoming period, signaling potential optimism in the company's ability to navigate its financial headwinds. Moreover, American Airlines is expected to be profitable this year, with net income anticipated to grow, which could be a sign of resilience despite short-term challenges.
For those seeking a deeper dive into American Airlines' financials and strategic positioning, InvestingPro offers additional insights. There are 6 more InvestingPro Tips available for American Airlines, providing a comprehensive analysis that investors may find invaluable. To access these tips and enhance your investment strategy, consider subscribing to InvestingPro using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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