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The 'Poorly Understood' Story Of American Airlines; Is There 40% Upside Potential?

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The 'Poorly Understood' Story Of American Airlines; Is There 40% Upside Potential?

After posting a slight earnings beat for the second quarter, American Airlines Group Inc (NASDAQ: AAL) has further upside ahead, according to Buckingham Research Group analyst Daniel McKenzie.

McKenzie reiterated a Buy rating on the stock and raised his price target from $68 to $70, a 40 percent upside from its close on July 28 after factoring a 1 percent dividend yield.

The company reported an EPS of $1.92 compared to the Street’s $1.87 estimate and sales in line at $11.1 billion.

$5 Billion Q3 Earnings Not Implausible

The company guided for $5 billion in pre-tax earnings which, according to McKenzie, requires two years of excellent revenue per available seat mile execution.

“The vast majority of investors find [that] implausible,” said McKenzie in a note, adding that he’s “comfortable with the math.”

The analyst believes management’s Q3 RASM guide is light, and could be raised on their investor day at the end of September.

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McKenzie also estimates that the roll out of basic economy and opportunity from Brazil’s recovering economy could create $2.5 billion in revenue upside.

Network optimization, premium economy and a redesign of its rewards program are among other initiatives that could drive earnings growth.

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Latest Ratings for AAL

DateFirmActionFromTo
Apr 2021Raymond JamesUpgradesUnderperformMarket Perform
Apr 2021Morgan StanleyInitiates Coverage OnUnderweight
Mar 2021JefferiesUpgradesUnderperformHold

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