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American Airlines Wins Earnings, Projects Big Growth
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American Airlines Wins Earnings, Projects Big Growth

Give American Airlines (AAL) credit for its sheer optimism. The company posted its earnings report, which featured wins, at least of a sort. However, the biggest wins came about as a result of American’s impressive projections going forward.

The company encouraged shareholders to brace for what should be the “record of all revenues,” and American shot up 10.5% in premarket trading on Thursday as a result.

Those gains held into Thursday’s trading, but I’m turning bearish on American Airlines. When a company advances on smaller than expected losses, I get concerned. Follow that up with a rosy but largely unsupportable thesis about future growth, and I get worried.

Looking at the last 12 months in share prices for American Airlines reminds me of a flight I wouldn’t want to be on. The company ended last April on an upward note, but then promptly started a decline.

The company pulled out of its tailspin on at least eight separate occasions. It generally lost ground shortly thereafter, ending the last 12 months down from what it was this time last year.

The latest news seems to be helping, but for how long? The company’s earnings report featured a win for both earnings and revenue. The company turned in a loss of $2.32 per share. Refinitiv analysts were expecting a loss of $2.40 per share. Revenue was an outright win at $8.9 billion against projections of $8.8 billion.

Wall Street’s Take

Turning to Wall Street, American Airlines has a Moderate Sell consensus rating. That’s based on eight Holds and four Sells assigned in the past three months. The average American Airlines price target of $15.41 implies 24.3% downside potential.

Analyst price targets range from a low of $8 per share to a high of $19 per share.

Investor Support Proves Mixed for American

Investor support, meanwhile, is proving a mixed bag.

One of the biggest bear cases for American Airlines right now is hedge fund involvement. The TipRanks 13-F Tracker reveals that hedge funds lowered their involvement by 2.2 million shares last quarter.

American enjoyed a modest uptick in hedge fund involvement between June and September 2021. However, between September and December 2021, the hedge funds pulled back once more.

Insider trading, meanwhile, was fairly brisk. Though lately, sellers are ahead of buyers, the longer-term picture puts the two forces about even. In the last year, buyers led sellers 20 to 13. However, in the last six months, sellers led buyers 13 to nine.

Retail investors, however, are increasingly in on American Airlines. The amount of portfolios holding American shares is up 5.9% in the last 30 days.

Recovery Narrative Doesn’t Fly Here

I’ve never been particularly happy about the notion of a company’s stock gaining ground because it posted a smaller loss than expected. Yes, it’s a win, but only a win in the technical sense. The company still lost a massive amount of money.

The macroeconomic environment doesn’t look good for American Airlines overall, either. It was counting on business travel to return. It’s been showing signs of doing that, certainly. With a recession looming in the background, how much longer will that continue?

The same case carries on to individual travelers. Inflation is currently eating disposable income’s lunch. Thus, why would travelers hop a flight to anywhere as opposed to staying home and at least somewhat saving money?

Bacardi just filed a lawsuit against American Airlines. Allegedly, the airline failed to deliver several thousand bottles of cognac to Los Angeles back in September. The combined value of the cognac in question came out to $65,820. American, Bacardi notes, has paid nothing in compensation thus far.

Worse yet, American stepped into a minefield of troubles thanks to rapper Iggy Azalea. Azalea, traveling with one-year-old son Onyx, was left “stranded” without luggage at Miami International Airport, Azalea noted.

Azalea took to social media to castigate the company over its practices. In turn, several others who follow the rapper noted their own experiences of being stranded without luggage.

Take all these factors together and suddenly, the “recovery narrative” just doesn’t work any more.

Concluding Views

American shares come with downside risk. That alone is bad news; a company trading over its highest price targets is either better than people think, or about to take a fall. Given that American is losing luggage left and right — including that of celebrities and other corporations — it doesn’t bode well for the “better than people think” side.

American hasn’t paid a dividend in years. Worse, American is frantically losing on multiple fronts. Luggage, hedge fund support, public sentiment, and perhaps worst of all, money.

There are a few bright spots with American. Right now, though, it looks like the company has few other places to go but down.

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