On Monday, Jefferies analyst Sheila Kahyaoglu upgraded American Airlines (NASDAQ:AAL) stock from Hold to Buy, setting a new price target of $20.00, a notable increase from the previous target of $12.00. The upgrade comes as part of Jefferies' 2025 Airlines Outlook, which projects a favorable future for the airline.
According to InvestingPro data, 13 analysts have recently revised their earnings expectations upward, and the stock appears slightly undervalued based on Fair Value analysis. The stock has shown impressive momentum, gaining over 53% in the past six months.
Kahyaoglu's analysis suggests that American Airlines is poised to outperform expectations due to several key factors. Firstly, Jefferies forecasts a 2025 earnings per share (EPS) of $2.55 for American Airlines, which is 14% higher than the consensus estimates.
This optimistic projection is attributed to an anticipated rise in Total (EPA:TTEF) Revenue per Available Seat Mile (TRASM), expected to grow by 2.3% compared to a street estimate of 1.8%, despite a slightly higher forecast for Cost per Available Seat Mile excluding fuel (CASM-ex) at 3.5% versus the street's 3.3%. The company, currently valued at $11.15 billion by market cap, is expected to achieve an EPS of $1.79 in FY2024, according to InvestingPro forecasts.
The analyst also points to the overall industry environment, which is believed to support low single-digit Mainline TRASM growth, with consensus around 2% for competitors such as Delta Air Lines (NYSE:DAL) and United Airlines. However, American Airlines is expected to excel due to the recapture of $1.5 billion in distribution revenue by 2024, which could significantly impact EPS for each percentage point gained.
Moreover, a credit card deal is anticipated to lock in $1.5 billion of incremental pre-tax earnings growth by 2030 compared to 2024. The new price target of $20.00 is based on a 7.5 times price-to-earnings (P/E) ratio, which is lower than the 10 times P/E ratio often associated with Mainline airlines, suggesting a conservative but optimistic valuation.
For deeper insights into American Airlines' valuation metrics and financial health analysis, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with expert analysis and actionable intelligence.
American Airlines' stock upgrade by Jefferies reflects a positive outlook on the company's financial performance and strategic initiatives, setting a higher expectation for its growth in the coming years.
In other recent news, American Airlines has seen a significant upgrade from TD Cowen, raising the stock rating from Hold to Buy, due to strengthening domestic and Latin market pricing. This upgrade is consistent with broader market sentiment, with 13 analysts recently revising their earnings estimates upward.
American Airlines has also made significant amendments to its credit agreements, replacing existing term loans worth nearly $2 billion with new ones, reflecting ongoing efforts to manage their significant debt structure efficiently. The airline has also entered a 10-year co-branded credit card deal with Citi, which is expected to enhance annual cash compensation by 10%.
On the other hand, Boeing (NYSE:BA) shares remain steady according to Wolfe Research, despite recent aviation incidents involving the aircraft manufacturer's models. The firm maintains its Outperform rating and a $195.00 price target for Boeing, suggesting confidence in the company's stock performance and outlook.
However, American Airlines recently grounded all its flights within the US due to an unexplained technical glitch. The resolution timeframe remains uncertain, but efforts are underway to rectify the issue as swiftly as possible. These are the latest developments in the aviation industry, providing investors with a snapshot of recent events influencing these major companies.
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