On Wednesday, Jefferies, a global investment banking firm, increased its price target for American Airlines (NASDAQ:AAL) shares to $12.00, up from the previous target of $11.00. The firm has maintained a "Hold" rating on the stock.
The adjustment reflects a positive shift in the analyst's expectations, citing a stable outlook for the airline's fourth-quarter revenue metrics.
According to the analyst, American Airlines' Total Revenue per Available Seat Mile (TRASM) is expected to remain flat sequentially and to be down only 2% year-over-year. This is despite forward indirect bookings declining by 7% in September, an improvement from the peak share loss of 11% in the second quarter and 10% in the third quarter of the current year.
The analyst also noted an improved industry backdrop as a reason for the adjustment, which has led to a revised 2024 earnings per share (EPS) estimate. The new EPS forecast is set towards the upper end of the guidance range at $1.50, compared to the guided range of $1.35 to $1.60. This represents an approximate 50% increase at the midpoint of the guided range.
American Airlines' strategic goal of reclaiming its position as the third-largest player among top U.S. network carriers hinges on the recovery of $1.5 billion in indirect revenues lost. The airline aims to recapture this revenue by the end of 2025. The analyst's comments highlight the importance of this objective for the airline's financial health and competitive standing within the industry.
In other recent news, American Airlines has been the subject 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 all revised their price targets for the company, citing various reasons such as improved industry backdrop, optimistic projections for revenue per available seat mile growth, and reduced fuel cost expectations.
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. The company also aims to recover all $1.5 billion in indirect revenue lost by the end of 2025, as per the analyst's comments.
The airline's stronger-than-expected performance was attributed to a decrease in fuel costs throughout the quarter and better unit revenues.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on American Airlines' financial position and market performance, complementing Jefferies' analysis. The company's market capitalization stands at $9.08 billion, reflecting its significant presence in the Passenger Airlines industry.
American Airlines has shown strong recent market performance, with a 22.95% price return over the past month and a 28.44% return over the last three months. This aligns with the positive outlook expressed in the Jefferies report and suggests growing investor confidence.
InvestingPro Tips highlight that 12 analysts have revised their earnings upwards for the upcoming period, which corroborates Jefferies' increased EPS estimate for 2024. Additionally, the company's profitability over the last twelve months supports the analyst's optimistic stance.
However, it's worth noting that American Airlines operates with a significant debt burden, which could impact its financial flexibility as it aims to recapture lost revenues. The company's P/E ratio (adjusted) of 9.81 for the last twelve months as of Q3 2024 indicates a relatively modest valuation compared to its earnings.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for American Airlines, providing a deeper understanding of the company's financial health and market position.
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