American Airlines Group Inc (NASDAQ:AAL) reports earnings Friday morning. But in front of the release are investors readying for a takeoff or bracing for an emergency grounding in AAL stock?
Let’s take a look at American Airlines recent quarterly announcements, the AAL stock chart and what, if anything, the options market estimates in front of the earnings report.
American Airlines Earnings Picture
In front of Friday morning’s second-quarter earnings release, 15 analysts are forecasting a mean profit of $1.68 per share of AAL. Views range from $1.50 to $1.73.
On the one hand, the current consensus estimate compares to last year’s same quarter result of $2.62 and represents a decline of nearly 36%. On the other hand, earnings did top Street estimates by about 8% in the year-ago quarter.
Full-year profit views are for AAL to earn $5.33 in 2016 and down from 2015’s $9.09 per share result.
On the sales side, AAL’s revenues are expected to rise to $10.31 billion compared to Q1’s $9.44 billion result, but slip marginally from 2015’s same quarter sales of $10.83 billion.
AAL Stock Short-Term Trading Record
Shares of American Airlines have established a strong pattern of beating Street profit views. In fact, over the past 10 quarters, AAL earnings have beat forecasts 100% of the time. In the immediate aftermath of reporting, however, investor reaction in AAL stock has been less impressive.
Losses over the past several quarters have held the advantage over gains in AAL shareholder value. Working backward, AAL has moved -4.50%, 2.24%, -0.70%, -7.00%, 2.43% and -4.96%.
Overall this has produced an average loss of -2.08% and variability of about 4% based on a one standard deviation reading. AAL’s seven-day stock performance has resulted in a larger average loss of -5.62% with one standard deviation of 5%.
AAL Stock Weekly Chart
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With the aggressive rally over the past month, shares of AAL are extended short-term into overhead technical zone resistance. American Airlines could still find a bid from investors, as there are no technical certainties in the market, but we wouldn’t push our luck in this situation.
At the end of the day a bullish reaction would run counter to recent earnings moves in AAL stock as shares challenge key resistance from the 38% to 50% Fibonacci levels, fairly obvious price congestion and a down-channel line.
AAL Stock Options Pricing
Other traders are less cautious this week in AAL options. On Monday one large trader was spied rolling up 10,000 contracts into the Aug $37 call. The AAL call adjustment reduces or even eliminates risk, but still exposes the bullish trader to the premium on that strike.
Tuesday’s session in American Airlines options has been less interesting as far as activity. However, premiums point to a 68% chance AAL stock will trade in a range spanning roughly from $34.35 to $38.40 through this Friday.
The math behind the AAL calculation is based on the at-the-money weeklys July 22 straddle market, which trades on implied volatility of 62% with three trading sessions until expiration.
The weeklys are the purest play on the earnings event and tells us what traders collectively expect from AAL stock in the immediate aftermath of its quarterly announcement.
The expected dollar works out to about 5.6% by Friday’s close. That size reaction is on the edge of recent close-to-close changes in AAL, but fairly ordinary versus the discussed individual results.
What might raise eyebrows, other than to the trader rolling the aforementioned calls, is a move of that magnitude pushing AAL higher. As noted, AAL stock has demonstrated more of a knack for grounding investors and we’re not optimistic a new trend has the fuel to break that record this earnings season.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
