American Airlines Estimates Hiked At This Wall Street Firm...But Why?

• Shares of American Airlines Group Inc AAL have declined 21.98 percent over the past one year, to $38.86 on January 19.
• Michael Derchin of Stern Agee CRT has maintained a Buy rating on the company, with a price target of $52.
• The company is expected to benefit from the robust overall demand environment and potential for jet fuel prices to decline further in 2016, Derchin mentioned.

Analyst Michael Derchin stated that “low oil prices makes getting to positive unit revenue growth more challenging but still a goal for 2016,” while adding that capacity discipline despite the low oil prices and commercial efforts focused on domestic opportunities were expected to benefit the company.

Among the opportunities potentially in store for American Airlines in 2016 is merger integration revenue synergies, which are expected to accrue “with the successful reservations system cut over in October 2015.”

Most of the collective bargaining agreements have already been ratified and the estimated cost inflation has been built into the unit cost forecasts, ex-fuel.

“With no hedges in place, AAL is expected to capture the full benefits of a low fuel environment, with no hedging losses. Sizable buybacks are continuing to enhance shareholder value,” according to the Sterne Agee CRT report.

Derchin also pointed out American Airlines’ one world alliance with the U.K. to the U.S. was the most profitable in the industry, while the company is in the process of improving its IT systems in order to enhance its revenues and operations, and lower costs.

The company’s China exposure is less than 2 percent, which Derchin sees as a short-term plus.

The 2016 and 2017 EPS estimates have been raised from $6.60 to $7.03 and from $7.64 to $8.23, respectively.