American Airlines (AAL) is an airline company headquartered in Texas. According to scheduled passengers, revenue per passenger, and fleet size, the company is the biggest airline company globally. With help from regional partners, the company operates in more than 350 destinations and approximately 50 countries.
I am neutral on American Airlines as Wall Street analysts lean slightly bearish on it, the average price target implies little to no upside over the next year, and the stock price does not look particularly cheap when compared to historical valuation multiples.
Strengths
AAL has a detailed operational network through which it earns its revenue per passenger miles (RPM) and available seat miles (ASM). Millions of people board its flights every year.
While the company doesn’t have the biggest share of the airline industry, it still has one of the biggest presences in the industry due to its unmatched infrastructure and fleet. The company also benefits from strong alliances all over the world. AAL is one of the founders of OneWorld, an alliance between Cathay Pacific, Air Berlin, British Airways, and several other airline companies.
Recent Results
In the fourth quarter of 2021, the company reported a revenue of $9.4 billion, a 17% decrease compared to the same period in 2019. AAL also reported a 13% overall decrease in its available seat miles. AAL’s fourth-quarter loss stood at $931 million, equating to -$1.44 per share.
The net loss for the whole year stood at $2.0 billion. Then again, the company was responsible for transporting 165 million passengers in 2021, which is more than any other airline company in America. Moreover, the company ended the fourth quarter with total liquidity of $15.8 billion.
Valuation Metrics
AAL stock looks reasonably priced here, even though it trades well above its historical averages on a forward EV/EBITDA ratio. This is due to temporary headwinds from the COVID-19 outbreak, and it trades close to its historical average EV/sales ratio.
As a result, as air traffic patterns and, therefore, its profit margins normalize moving forward, improved economies of scale should enable it to return to a more historically normal EV/EBITDA ratio. In fact, analysts expect revenue and EBITDA to recover substantially in the coming years.
Wall Street’s Take
Turning to Wall Street, AAL stock earns a Hold consensus rating based on one Buy, six Holds, and three Sell ratings in the past three months. Additionally, the average American Airlines price target of $17.39 puts the upside potential at 5%.
Summary and Conclusions
AAL stock is backed by a leading airline in the United States. As a result, it has substantial consumer data and relationships as well as a built-out air travel infrastructure network.
The company is currently facing headwinds from COVID-19 impacts and failing to generate a profit. On top of that, Wall Street analysts are not bullish on the stock here, and the average price target implies little to no upside potential over the next year.
While the stock does not look expensive here, it does not look cheap either. As a result, investors might want to wait for a meaningful pullback in the stock price before considering adding shares.
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