American Airlines Stock Looks Poised to Keep Climbing

After American Airlines (NASDAQ:AAL) reported strong second-quarter results on July 22 and made very positive comments about its outlook, I recommend that investors buy AAL stock.

American Airlines plane on ramp in Chicago Airport.
Source: GagliardiPhotography / Shutterstock.com

Because concerns about the Delta variant leading to new lockdowns or a significant curtailment of airline travel are way overdone. American’s financial results should continue to improve.

Also making AAL stock attractive is the fact that American Airlines has taken actions that show that it’s very confident in its medium- and long-term outlooks.

Good Q2 Results

American reported a Q2 loss per share of $1.69. That was 92 cents better than analysts’ average outlook. The company’s sales came in slightly below the mean estimate, but they soared 87% versus Q1.

Additionally, American’s passenger revenue more than doubled versus Q1, while its passenger revenue per available seat mile climbed 42% from the previous quarter. In another very good piece of good news, the company said that it was profitable in June.

What’s more, American said that its net bookings had reached similar levels as in the same quarter of 2019. And for the current quarter, the airlines expects its total sales to be down only about 20% versus the same period of 2019. Additionally, indicating that its Q3 loss will be minimal, American predicted that its Q3 pretax margin, excluding special items, would be between -3% and -7%.

In line with my previous prediction regarding the rebound of business air travel, American reported that the company’s revenue from business travelers had gone from about 20% of 2019 sales in March to roughly 45% of 2019 sales in June.

“Looking forward, we expect {the} business {travel} recovery to continue and accelerate,” said American President Robert Isom on the company’s Q2 earnings conference call.

Finally, another InvestorPlace columnist, Marek Hake noted that American’s cash flow from operations had come in at $3.47 billion.

Signs of Strong Confidence

In recent weeks, American has made several moves that indicate that the company is very upbeat about its medium- and long-term outlook.

For example, the company announced on its Q2 earnings conference call that it had repaid a $950 million loan that was not due until April 2023, and the company hired almost 3,5000 new employees while bringing back 3,000 more from furloughs. Meanwhile, the airlines now expects to cut its debt by more than $15 billion by the end of 2025, CFO Derek Kerr reported on the conference call.

And in the current quarter, American intends to free up 20 777 aircraft made by Boeing (NYSE:BA). Finally, the company intends to add over 150 routes during the summer months.

The Delta Variant

Indisputably, the 2020 lockdowns badly hurt children, many of those with illnesses other than Covid-19, and the American and global economies. Yet I’ve seen no concrete evidence that the lockdowns helped prevent the coronavirus from spreading.

Indeed, there’s been speculation that the disease may spread less when people are out in the world (but avoiding crowds) than when they are cooped up together in a house or apartment.

Meanwhile, by contrast, the vaccines are helping a great deal. Severe illnesses are very rare among vaccinated people. For example, the CEO of Houston Methodist Hospital, Marc Boom, speaking on Bloomberg TV on July 26, said that 85% to 90% of his hospital’s current coronavirus patients had not been vaccinated.

And U.S. daily deaths from the coronavirus have recently been in the 200 to 400 range. That’s significantly below the daily average of the roughly five-month 2017-2018 flu season, when over 80,000 people in the U.S. died of the virus. (That works out to an average of roughly 530 deaths per day).

And on the individual level, with relatively few exceptions, those who are very afraid of the coronavirus have gotten a vaccine, while those who haven’t gotten a shot are not very afraid of the disease. What’s more, several vaccinated people who were previously very afraid of the coronavirus last year have told me that they have flown after receiving the shots.

Given these points, I’m convinced that demand for airplane tickets will continue to get closer to 2019 levels going forward.

The Bottom Line on AAL Stock

Travel trends are strengthening and poised to improve further going forward, while American reported strong Q2 earnings and provided upbeat Q3 guidance. Moreover, fears about the Delta variant hurting airlines are unwarranted.

As a result of American’s strong outlook, I am confident that AAL stock will outperform the S&P 500 for the rest of the year.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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