Shaun Pruitt
·3 min read
The risk to reward is becoming favorable for American Airlines stock (AAL) which currently sports a Zacks Rank #1 (Strong Buy). Furthermore, the Zacks Transportation-Airline Industry is in the top 13% of over 250 Zacks industries at the moment.
Peak Travel Season
Edging closer to the warmer months of the year, we are entering peak travel season and this should certainly give a boost to many airlines. There is also the possibility that travel will be higher in 2023 from lingering pent-up demand following the pandemic.
In its latest data at the end of March, the U.S. Travel Associations’ survey of travel spending totaled $93 billion in February which was 5% above 2019 pre-pandemic levels and 9% above 2022 levels.
Plus, the Transportation Security Administrations' (TSA) checkpoint travel numbers have seen quite a few days spike above 2019 levels so far this month and are overall higher than last year as shown in the nearby chart.
Image Source: Travel Security Administration
Earnings Estimate Revisions
In correlation with the plausibility of higher travel demand, American Airlines’ earnings estimate revisions have continued to trend higher. Fiscal 2023 earnings estimates have now soared 32% over the last 90 days with FY24 EPS estimates rising 20%.
Image Source: Zacks Investment Research
American Airlines FY23 earnings are now forecasted to rebound and skyrocket 410% at $2.55 per share compared to EPS of $0.50 in 2022. Even better, fiscal 2024 earnings are expected to climb another 24% at $3.16 per share.
On the top line, sales are projected to jump 9% this year and rise another 4% in FY24 to $55.77 billion. More importantly, fiscal 2024 would be 25% above 2019 pre-pandemic sales of $44.54 billion. This will certainly help the company’s bottom line start to catch up as well.
Image Source: Zacks Investment Research
Attractive Valuation
Along with its post-pandemic growth recovery, American Airlines’ valuation may be intriguing to investors right now with Tesla (TSLA) CEO Elon Musk recently announcing he will purchase a 51% stake in the company.
News of Musk’s majority interest in American Airlines surfaced at the beginning of the month. Although the Tesla boss jokingly stated he simply has an abundance of cash and likes buying companies with bird logos (Twitter) there is surely the factor of American Airlines price to earnings discount.
Image Source: Zacks Investment Research
American Airlines stock trades at just 5.1X forward earnings which is nicely beneath the industry average of 11.2X and the S&P 500’s 19X. Shares of AAL also trade 74% below their historical high of 21.1X since merging with U.S Airways in 2013. Plus, American Airlines stock trades at a 22% discount to its historic median of 6.9X.
Bottom Line
Now appears to be a great time to get in on American Airlines stock with earnings estimate revisions trending higher and shares still near 52-week lows at around $13 per share. The rising earnings estimates also make American Airlines P/E valuation very attractive and indicate its stock could indeed be vastly undervalued right now.
It would be no surprise if American Airlines stock begins to fly this year with the Average Zacks Price Target suggesting 37% upside from current levels.
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