American Airlines closes gap on legacy peers; upgraded to Peer Perform at Wolfe

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Wolfe Research upgraded American Airlines Group Inc. (NASDAQ:AAL) to Peer Perform (From Underperform) and set a price target on the stock at $14.00 following the group’s mid-quarter guidance update last week.

AAL remains heavily shorted with a 10% short interest, but it’s been consistently executing and making/beating estimates in recent quarters. As a result, Wolfe updated their C23 EPS estimate to $2.50 (17% above Consensus), and AAL is now the airline where Wolfe most above Consensus in C23.

Wolfe analysts wrote in a note, “This week, AAL made no changes to its 1Q:23 breakeven guidance as well as its C23 EPS guidance of $2.50 to $3.50. We are raising our C23 EPS estimate from $2.30 to $2.50. We remain below the midpoint of AAL’s C23 guide but above Consensus of $2.13. AAL is now trading at 5.7x our C23 EPS estimate and 6.1x EV/EBITDAR. As a result, we’re raising our rating on the stock from Underperform to Peer Perform.”

“Since 2018 (excluding COVID years), AAL has made significant progress in closing the margin gap with legacy peers,” continued the analysts. “In 4Q:22 AAL’s pretax margins were just 200bp worse than DAL’s and 100bp worse than UAL’s. We think AAL can continue to close this gap.”

Shares of AAL are down 2.94% in mid-day trading on Friday.