American Airlines (NASDAQ:AAL) stock tumbled recently, but this could be a setup for a comeback and even a high flier soon. I am bullish on AAL stock because American Airlines made a smart move by providing modest guidance, thereby setting a low bar that the company can easily clear.
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Texas-headquartered American Airlines is a famous airline carrier that’s been around since 1930. Prior to the COVID-19 crisis of 2020, it generally seemed safe to invest in a company like American Airlines because the air travel market was robust, supply chains ran smoothly, and fuel prices weren’t extremely high. Then came the pandemic, and after that abated, airlines had to deal with oil price shocks, sticky inflation, and supply-chain disruptions.
Consequently, AAL stock is trading fairly close to pandemic-low levels, and the share price just got slammed again — a week and a half before an upcoming earnings event. Now, it’s up to investors to decide — is American Airlines really in deep trouble, or is the market’s reaction overdone? Ultimately, you may find that there’s a prime dip-buying opportunity taxiing down the runway.
AAL Has Problems, but a Lack of Passengers Isn’t One of Them
To be completely honest, it’s not appropriate to go all-in on AAL stock, as American Airlines does have some issues. Those issues generally don’t involve a lack of passengers, however. For example, American Airlines has to deal with staffing shortfalls, especially in the field of air traffic controllers. Plus, the airline suspended some flights due to holdups in the delivery of jets from Boeing (NYSE:BA).
Yet, despite the delays from Boeing, an American Airlines spokesperson assured that the carrier still plans to offer “a robust international network this summer.” In addition, a recently released update indicates that American Airlines counted 65 billion total available seat miles during 2023’s first quarter. On a year-over-year basis, this represents a 9.2% increase — not too shabby.
That update, by the way, provides American Airlines’ preliminary results for Q1 2023. Reportedly, the company expects its total quarterly revenue per available seat mile (TRASM) to be up 25.5% year over year. Again, the results are sounding fairly positive so far.
Therefore, it would make sense that financial traders should bid up the AAL stock price, right? As it turned out, AAL stock fell 9% after the release of the preliminary quarterly data. Bear in mind that the official first-quarter results aren’t scheduled for release until April 20, so what was problematic about American Airlines’ preliminary results, then?
American Airlines Just Gave Investors a Chance to Board the Plane
Sometimes, preliminary earnings releases will shake nervous investors out of the tree. Then, “smart money” can scoop up shares at a great price. This could be happening right now with AAL stock since fear and disappointment can quickly turn around if the final quarterly results aren’t as bad as expected.
Here’s what short-term traders probably didn’t like. According to the preliminary results, American Airlines expects its first-quarter EPS to be between $0.01 and $0.05. That’s actually an improvement compared to the company’s prior guidance of around break-even. However, analysts had called for quarterly EPS of $0.05 per share, so apparently, some traders were alarmed by American Airlines’ guidance range.
This could easily be a case of American Airlines being realistic while analysts were too optimistic. Cowen analyst Helane Becker admitted, “In general, estimates have been trending higher over the past few weeks, although it appears as though some estimates were too aggressive.” If that’s the case, then there’s really no need for traders to punish American Airlines so severely by dumping the stock.
Is AAL Stock a Buy, According to Analysts?
Turning to Wall Street, AAL stock is a Hold based on one Buy, eight Holds, and two Sell ratings. The average American Airlines stock price target is $17.92, implying 27.85% upside potential.
Conclusion: Should You Consider American Airlines Stock?
American Airlines will still have to contend with issues, including the high cost of fuel and labor. However, there’s no indication that the company lacks passengers or revenue.
I believe there’s a brief window of opportunity for nimble investors here. American Airlines released preliminary results that weren’t terrible, but the market still dumped AAL stock. If April 20’s actual quarterly results aren’t horrendous, don’t be surprised if the stock recovers quickly. Therefore, I believe it’s a good time to consider picking up a few American Airlines shares for a quick trade or even a long-term investment. Either way, investors should prepare for takeoff.
