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American Airlines Sees Brexit Effect Limited; Buckingham Research Ups Price Target

Although immediately after the Brexit vote, Buckingham Research trimmed its 2017 revenue estimate for American Airlines Group Inc  by $1 billion, the firm noted that management sees limited impact from the development, ex-forex. This has led the firm to raising its valuation multiple for the company and, in turn, the valuation.

Q2 Results And Forward Guidance

The firm noted that the company reported second-quarter earnings per share of $1.77, exceeding its estimate and the consensus. Premising on fuel, firm's analyst Daniel McKenzie raised his third-quarter 2016 earnings-per-share guidance by a nickel to $1.55, although it maintained its 2017 earnings-per-share estimate.

The management's decision to reduce capital expenditure materially in 2018 is seen by the analyst as a step to accelerate free cash flow. The deleveraging will cater to investors with longer investment horizon, according to the analyst. The analyst also noted that management is confident of the new revenue management system to be rolled out in the fourth quarter of 2016, which should generate at least $1 billion in new revenue in 2017.

Analysts' Take

Noting that the stock is down 14 percent in the year-to-date period on industry-wide pricing/over-capacity worries, as well as Brexit and terrorism, the analyst believes the stock will perform much better given the anticipated improvement in revenue trends in the second half of 2016 and easier comparisons.

The firm revised its price target for the shares of the company to $49 from $44 based on its revised multiple of nine-times versus the previous eight-times and unchanged 2017 earnings per share, to which it added $2 for the net present value of NOLs. Buckingham Research sees multiple expansion as the company demonstrates that its free cash flows are sustainable.

Buckingham Research maintains its Buy rating on the stock, with a $5 increase to its price target ($44 to $49).