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American Airlines Stock Is Neutral Despite Strong Management

AAL, AAR - American Airlines Stock Is Neutral Despite Strong Management

American Airlines Group Inc’s AAL 1.33% strong management is likely to be put to the test by new international uncertainties and continuing RASM declines in the domestic market, Imperial Capital’s Michael Derchin said in a report. He initiated coverage of the company with an In-line rating and a price target of $40.

American Airlines was able to generate record net profit and pretax margins, while “flawlessly executing” the massive integration of AMR Corporation NYSEAAR and US Airways Group Inc NYSELCC, analyst Derchin noted.

No Rest For The Weary

American Airlines’ execution skills are about to be tested again by international headwinds, including Brexit, terrorism and Zika scares, as well as by domestic RASM pressure.

Domestic RASM has been declining, despite it being almost a year since LUV completed the final phase of its buildup in Dallas Love Field, which was expected to ease some of the pricing pressures, Derchin mentioned.

“While AAL’s operating cash flows have been strong, AAL has an aggressive CAPEX program financed with low cost debt, which limits free cash flow yields and results in a more financially leveraged carrier than its Big 3 peers,” the analyst wrote. Apart from American Airlines, the Big 3 include United Continental Holdings Inc UAL 1.39% and Delta Air Lines, Inc. DAL 1.04%.

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DateFirmActionFromTo
Aug 2016Imperial CapitalInitiates Coverage onIn-line
Jul 2016JP MorganMaintainsOverweight
Jul 2016Deutsche BankMaintainsBuy

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