American Airlines (NASDAQ:AAL) still has a long way to go to recover from the downturn brought on by the novel coronavirus pandemic.
But a solid second quarter and signs that business travel is beginning to return bodes well for AAL stock. And with the stock price remaining near $20 per share, there appears to be an opportunity for investors to grab hold just as American’s recovery takes full flight.
There’s one caveat, however.
The Delta Variant
Maybe it sounds like a broken record, but we really can’t consider any stock without weighing the effects of Covid-19. And airline stocks suffered more than most last year when the economy essentially locked down and people worked from home.
True, 70% of U.S. adults have received at least one shot of a Covid-19 vaccine. But there are legitimate fears that the Delta variant sweeping across the country could further delay the recovery. President Joe Biden said Aug. 3 that 80% of all Covid-19 cases in the U.S. are from the Delta variant.
The Delta variant is being called a “pandemic of the unvaccinated.” People who have not received a Covid-19 vaccine are more likely to become seriously ill. Those who have been vaccinated can transmit the pandemic, but they are much less likely to become ill.
What does this mean for AAL stock?
Well, one of the reasons why people are bullish on American Airlines is that the company is starting to turn a profit again. Business travel is just starting to resume. If people start returning to their offices and business airline travel begins to recover, AAL stock will be a solid winner in the second half of 2021.
AAL President Robert Isom told analysts in July that domestic business travel in March was only at 19% of 2019 levels. But by June, American Airlines saw business travel increase to 45% of 2019 levels. The company is expecting business travel to be completely recovered by 2022, he said.
“Looking forward, we expect business recovery to continue and accelerate,” he said, “In the coming months, our share of bookings in key business channels remains ahead of 2019. And customers are telling us that they’re eager to travel and some of our largest corporate accounts have already lifted all travel restrictions and many have already returned to the office.”
If businesses continue to be comfortable in returning to the office, AAL stock will be a direct beneficiary. But it all depends on what information comes from the Centers for Disease Control and Prevention, and local health experts.
American reported earnings for the second quarter on July 22. For the first time since the pandemic began, the company reported a quarterly profit. It earned $19 million, or 3 cents per share, compared to a loss of $4.82 per share a year ago.
Excluding certain items, the company posted an adjusted loss of $1.69 per share, which was better than the $2.09 per share that analysts were expecting.
Revenue was $7.48 billion, which was an increase of 361% from a year ago, and beat analysts’ expectations of $7.32 billion.
Chairman and CEO Doug Parker told analysts that the company had $21 billion in total available liquidity in the second quarter, which was the most in the company’s history. He announced that in July, the company prepaid a $950 million loan that was scheduled to mature in 2023, and will repay other loans early, citing the company’s second-quarter results and its expected recovery for the rest of the year.
In fact, the company plans to reduce its debt by $15 billion by 2025:
“We’ve flown more customers than any other airline in the second quarter. Our team safely transported more than 44 million passengers on nearly 470,000 flights. It’s more than five times the number of passengers we carried in the second quarter of 2020 and more than two-and-a-half times the number of flights. We’ve ramped up the operation dramatically in response to customer demand, and our operational performance continues to improve as we grow in scale.”
The Bottom Line on AAL Stock
No doubt, American Airlines has been beaten down during the pandemic. But now some analysts are starting to show it some respect. It was upgraded from neutral to buy from analysts at Seaport Global. It went from a sell to a hold at Berenberg. And AAL stock went from a negative to a neutral by analysts at Susquehanna.
The recovery for American Airlines won’t happen overnight, but the rest of the year and 2022 should see a gradual recovery for American Airlines.
The biggest wild card is the Covid-19 Delta variant. But considering that 70% of Americans now have at least one shot, it appears that business will soon be returning to normal.
AAL stock has a ‘A’ grade and a strong buy rating in my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (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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