AAL: American Airlines Stock Is Set to Soar Higher

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American Airlines (AAL) is the holding company for American Airlines and US Airways. AAL operates nearly 6,700 flights a day to 339 destinations in 54 countries. American Airlines is headquartered in Fort Worth, TX, merged with US Airways in Dec. 2013 and is the world’s largest airline by traffic.

After filing bankruptcy in November 2011 and approval of the US Airways in October merger 2013, American Airlines’ stock debuted on December 9, 2013 as a new company and has risen from $24.60 a share to about $38 a share, a gain of nearly 55%.

American Airlines 1-year Stock Price

Source: www.nasdaq.com

Great Operating Performance is Driving AAL Stock Higher

Following the merger, AAL is, arguably, in the best position in the airline industry to take advantage of industry trends that have taken years to play out since the great recession began.

In addition, even with the recent run up in stock price, American Airlines remains competitively valued compared to peers. AAL’s forward price-to-earnings ratio is less than six with a five-year price/earnings-to-growth ratio of 0.14 compared to an industry average P/E of 10.3. American Airlines is also one of the few airlines to offer a dividend with a yield of 1%.

AAL has been delivering solid results since the merger. Even in the face of tough weather conditions throughout the country in the first quarter, AAL reported record first quarter profits of $402 million, excluding one-time items, compared to a loss of $297 million as if the American Airlines and US Airways were merged for the full year prior. Total revenue for the first quarter also rose 5.6% to $10 billion, and both revenue and profits beat analyst expectations.

For the second quarter, American Airlines posted the highest quarterly profit in its history on elevated revenues. AAL profits were $864 million compared to $507 million the prior year on a combined company basis. Total revenue increased 10.2% to $11.36 billion. In the second quarter, American Airlines also announced a capital deployment plan that included the $0.10 per share dividend and a $1 billion share repurchase plan.

After the Q2 earnings release, AAL stock dropped to its current trading range in the high $30s, making it an even better buy. American Airlines also took the opportunity to use record profits to prepay $480 million in debt, and make supplemental payments to its defined-benefits plan of $600 million, above AAL’s $120 million minimum required contributions.

Additional Positives Will Continue To Drive Stock Higher

American Airlines has a solid balance sheet with approximately $9.5 billion in unrestricted cash and operating cash flow of $1.4 billion on a trailing-twelve-months basis, making the reliability of future dividend payments a confident assumption.

The smooth merger integration has resulted in increasing efficiency that has been demonstrated through higher revenue per seat mile and improved load factors (the portion of seats filled on a flight)

American Airlines continues to invest in new expansion and fleet modernization, which will lead to fuel savings and new profit opportunities. In the second quarter alone, AAL inducted 21 new aircrafts, announced 12 new routes in the US and expanded its international service with flights to destinations in both Asia-Pacific and Europe.

With continued great performance through 2014, increasing efficiency and modernization and expansion programs, we should see American Airlines stock to continue to rise.

As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/aal-american-airlines-stock-price-set-to-soar-higher/.

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