The 37% Upside Case For American Airlines

• American Airlines Group Inc AAL shares are down 21 percent year-to-date, after breaching the $55 mark in January and March.
• Buckingham Research analyst Daniel McKenzie maintained a Buy rating for the company, with a price target of $56.
• The company is poised to benefit from reduced fuel prices and its restructuring efforts, McKenzie said.

Analyst Daniel McKenzie mentioned that American Airlines has not changed its 3Q15 guidance despite the decline in fuel prices, which indicates that the company’s revenues are likely to be a little weaker.

Reduced fuel prices are expected to have a positive impact on the company’s 2H15 results. “For 2016, we're leaving our outlook unchanged given macro/FX headwinds, with a 1.5% cut to revenue offset by lower fuel expense,” McKenzie wrote.

Although PRASM challenges are expected to remain throughout the winter months, American Airlines is likely to be the best performing airline stock in 2016, given capacity-driven adjustments at the industry level during the year.

McKenzie added that American Airlines is taking steps to improve its efficiency in regional flying, and that the company is using its unneeded aircraft financing to repurchase shares. The company’s surplus liquidity, its restructuring efforts and share buybacks bode well for the stock.

The operating margin and EPS estimates for 2015 have been raised from 16.6 percent to 17.3 percent and from $8.46 to $8.85, respectively.