American Airlines (NASDAQ:AAL) is taking part in the vaccine rally. Shares of AAL stock are up more than 38% over the last 30 days. And although there’s been other news, I have to believe it’s mostly due to the hope that stems from multiple novel coronavirus vaccine candidates.
But American knows that they are looking at a blue Christmas with or without a vaccine. That’s why they’ve come up with an interesting partnership. They are offering passengers the opportunity to purchase an at-home Covid-19 testing kit from LetsGetChecked.
The idea is simple enough. If passengers are armed with a negative test result prior to boarding a plane they may avoid a mandatory quarantine at their destination. And having a negative test may also give skittish passengers the confidence to take to the skies.
On the latter I believe they may be on to something. But the former? Not so much. And that’s why I still find AAL stock to be a speculative buy at best.
An Overly Simple Solution
I can respect American’s efforts to offer a solution that, at a quick glance, could offer peace of mind to travelers. However, it didn’t take me much time to formulate some rudimentary concerns.
First, by American’s own admission not all states will waive their quarantine requirements based on a negative test. So that means you pay $129 for the test (on top of your airfare) and you’ll still be subject to quarantine. That’s a privilege that many passengers will opt not to pay for.
Second, the test is a home test, which means that you’re relying on consumers to administer the test properly. Personally I’ve never had a test. I’ve heard from people who have. They’ve told me it’s a little painful when administered correctly. I don’t imagine that will be the case here. All I’m saying is I can see a lot of false or inconclusive results.
Third, there’s the cost issue. I know that testing is still not readily available in all parts of the country. However, I live in a not densely populated area and I could go to my local Rite Aid (NYSE:RAD) and get a test performed for free. And I would get the results in the same time frame, or sooner, than the test being offered through LetsGetChecked.
Finally, the whole problem with the virus is the potential for asymptomatic transmission. You could be virus-free one day and have the virus the next but feel absolutely fine. That is why I imagine some states are not waiving their requirements for a positive test.
The push for massive testing is useful in terms of contact tracing. But for providing the kind of certainty American is looking for, not so much.
Taking the Temperature of Passengers
I admit that if passengers have a negative test and believe, or know, that other passengers have a negative test it could give them more confidence to fly. But with fever being one of the most telltale symptoms of Covid-19 so might a quick temperature check.
And it would cost a lot less.
But even then I suspect the gains would only be incremental. People that have to fly today will fly. And people that don’t won’t.
AAL Stock Has Hit Its Vaccine Premium
By now we all know that no matter how many vaccines are available, the pandemic won’t end by Christmas. Or Valentine’s Day. In fact, if we’re watching a gigantic fireworks display on the Fourth of July, we may be very fortunate indeed.
So my advice with travel-related stocks is not to give the stock a vaccine premium. Yes, the reality (and it is a reality) of a vaccine puts a floor on American and other airline stocks. However whatever you felt about AAL stock in January is how you should feel about it today. Back then, other airline stocks looked like a better buy and the same is true today.
There are 20 analysts who cover American and they offer a 12-month price target of $14.50. That’s about 15% less than where the stock is as I write this. The high price target of $27 was offered in June. That seems like an eternity. Recent price targets aren’t as generous.
If you’re going to take a ride on AAL stock, patience may not be enough.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.
