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Citi maintains buy rating on American Airlines stock with $20 target

EditorAhmed Abdulazez Abdulkadir
Published 03/12/2024, 09:56 PM
© Reuters.

On Tuesday, Citi reaffirmed its Buy rating on American Airlines (NASDAQ:AAL) with a steady price target of $20.00. The airline's first-quarter investor update presented a dual scenario. Management maintained its previous forecast for unit revenue and operating expenses excluding fuel. However, they acknowledged an uptick in fuel prices.

Citi highlighted that American Airlines, despite having a comparable EBIT margin to 2019 and an improved free cash flow (FCF) profile, is still trading significantly below its pre-pandemic valuation.

The airline's financial outlook, as per the update, shows persistence in some areas and challenges in others. While the unit revenue and non-fuel operating expenses remain on track as forecasted, the rising fuel costs could impact the company's profitability. This increase in fuel prices is a new development that may affect American Airlines' operational expenses moving forward.

American Airlines' ability to sustain its EBIT margin in comparison to 2019 levels, along with a stronger FCF profile, suggests a stable financial footing. Despite these positive indicators, the market valuation of American Airlines has not yet reached the levels seen before the pandemic hit, indicating a potential discrepancy between the company's financial health and its stock market performance.

The airline industry has been navigating through a turbulent period since the onset of COVID-19, with varying degrees of recovery across different carriers. American Airlines' latest update provides investors with a snapshot of its current financial trajectory and operational challenges, particularly in the context of fluctuating fuel prices.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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