Turbulent Outlook For American Airlines: Analysts Cut Forecasts As Competitive Pressures Mount

Zinger Key Points
  • BofA Securities cut its price target to $11 from $12, and Jefferies downgraded AAL to Hold, lowering its target to $12 from $17.
  • AAL shares down amid revenue challenges and increased competition from ultra-low-cost carriers.
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American Airlines Group Inc. AAL shares are trading lower after the company lowered its second-quarter adjusted EPS guidance and analysts cut the price target.

Yesterday, the airline lowered its second-quarter adjusted EPS forecast from $1.15-$1.45 to $1.00-$1.15, and the average fuel price is now expected to be approximately $2.70 to $2.80 per gallon of jet fuel.

The company also announced the departure of its Chief Commercial Officer Vasu Raja.

BofA Securities analyst Andrew G. Didora slashed the price target from $12 to $11 while reiterating the Underperform rating.

The analyst says that the guidance cut seems to be a combination of both higher domestic competition (competitor fare sales and higher capacity) and a loss of corporate share, given a de-emphasis post-pandemic.

Given the Chief Commercial Officer transition, Didora expects the company to pivot back to a more corporate-focused sales strategy, which could take some time to yield benefits.

The analyst lowered the second-quarter EPS estimate to $1.05 (from $1.20) and expects an FY24 EPS forecast of $2.20.

Seaport Research Partners analyst Daniel McKenzie downgraded the stock to Neutral from Buy.

The analyst writes that American Airlines’ revenue challenges are likely to persist beyond this summer, given increasing ultra-low-cost carrier growth at its top hubs.

The analyst stated earlier that AAL would likely guide to the lower end of its second quarter outlook and that there was $0.15-$0.20/share of downside risk to consensus, given a softening in pricing to Europe and the Caribbean per pricing study.

Consequently, the analyst cut the EPS estimate to $2.05 (from $2.85 vs. consensus $2.49) for FY24 and to $2.30 (from $3.50 vs. consensus $3.18) for FY25.

Also, Jefferies downgraded the stock from Buy to Hold and lowered its price target from $17 to $12.

Investors can gain exposure to the stock via U.S. Global Jets ETF JETS and Themes Airlines ETF AIRL.

Price Action: AAL shares are down 15.1% at $11.42 at the last check Wednesday.

Photo via Shutterstock

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