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American Airlines Passing Through Turbulence

After more than a year of lockdowns and border closings, many travelers are more than ready to board a plane and go somewhere. While business trends are moving in the right direction, the share prices of most airline and industry related stocks have been sloping steadily downward. American Airlines, Inc. (AAL) is no exception, seeing its share price hit a year-long high on June 2, and from there pulling back about 22%. (See American Airlines stock charts on TipRanks)  

Expressing her hypothesis on the company is Savanthi Syth of Raymond James Financial. Syth was not won over by the high demand for flights or the revenues brought in. Instead, she explained that the challenges facing the company and industry in general were too strong for any new attractive entry point. Syth rated the stock a Hold, and did not assign a price target. 

The four-star analyst wrote that reasons for the slump in share price include investor rotation out of the sector, consumer fears over the contagious Delta-variant of COVID-19, and rising gas costs for airlines. However, the latter is already baked into her forecasts for the airline industry, and as such is a non-issue in her evaluations.  

Easing CDC guidelines on leisure travel are expected to aide the airline with its domestic business, although those benefits might be canceled out by the slowdown in international travel. Nevertheless, Syth noted, American Airlines traditionally has “lower exposure to the long-haul international segment,” than its ilk. Furthermore, she does not expect countries that have vaccinated over 50% of their eligible populations to rollback reopening their economies.  

Even after the CARES act helpfully injected capital into the airline, AAL still finds itself in a short-staffed position and unable to operate about 1% of its July flights. It recently announced the temporary cancellation of these flights, but Syth expects the company to be back on its feet by the fall season.  

Syth defended her rating on the stock, stating that AAL’s “balance sheet remains the worst amongst U.S. airlines on an adjusted net debt to total capitalization basis.” The company does not have nearly the thirst for capital that United Airlines (UAL) has after its aircraft purchases, but will have pressure to deleverage its balance sheet soon after Delta Air Lines (DAL) deleverages its own.  

On TipRanks, AAL has an analyst rating consensus of Moderate Sell, based on 2 Buy, 2 Hold, and 5 Sell ratings. The average American Airlines price target is $21.44, suggesting a potential 12-month upside of 1.47% as of early Wednesday intra-day trading.   

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.