Buckingham: American Airlines Has 53% Upside
American Airlines Group Inc (NASDAQ: AAL) has a 53 percent upside, according to Buckingham Research Group. In a report released on Wednesday, the firm lifted its outlook and valuation, maintaining a Buy rating and raising their target price to $64 from $61.
Buckingham's valuations imply a 53 percent upside after it factor in the stock's 1 percent dividend yield.
"A modestly better earnings outlook is behind our modestly better valuation. Over the past year, mainline PRASM has come under structural pressure from competitive capacity and currency headwinds (outside AAL's control), however, the headwinds should abate in 2H16 given capacity-driven adjustments at the industry level in conjunction with revenue initiatives worth hundreds of millions for AAL," the firm commented.
"Fleet restructuring is also driving margin improvement; in 2015, AAL retired 143 older aircraft (9 percent of the fleet), replacing them with 127 new aircraft. Separately, AAL retired ~9 percent of its outstanding shares over the past 6 months and has $2.4B remaining in its existing $6B authorization. After factoring in aircraft financing, dividends, and debt due, AAL is generating enough FCF to return another $4B (15 percent of today's market cap) in 2016," Buckingham noted.
American Airline's longer-term fundamental valuation from the firm was given a 35 percent FCF yield. Buckingham sees the risk/reward to be at a 10 percent downside, with 71 percent upside under scenarios that are worse/better versus the firm's base outlook.
Latest Ratings for AAL
|Jan 2017||Cowen & Co.||Downgrades||Outperform||Market Perform|
|Dec 2016||Barclays||Initiates Coverage On||Equal-Weight|
|Nov 2016||Citigroup||Initiates Coverage On||Buy|
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