TD Cowen Downgrades American Airlines Stock Amid Revenue and Earnings Concerns
On Tuesday, TD Cowen downgraded American Airlines (NASDAQ:AAL) from Buy to Hold, setting a new price target of $10, down from the previous $16. The revision comes as the airline faces challenges with its aggressive discounting strategies, which could impact its revenue and earnings in the second half of 2024.
The analyst highlighted the potential negative effects of the discounting on the airline's revenue per available seat mile (RASM) and earnings per share (EPS) estimates. They also raised concerns about American Airlines' ability to generate free cash flow (FCF) in the medium term and the need for substantial investments to compete with rivals Delta Air Lines (NYSE:DAL) and United Airlines (UAL).
The firm's cautious outlook reflects doubts about the airline's financial performance and strategic positioning in the competitive aviation market. The new price target of $10 signals a recalibration of expectations for the stock value in light of these challenges.
In other news, American Airlines has made a significant investment in cleaner technology by agreeing to acquire 100 hydrogen-electric engines from ZeroAvia. This move aligns with the industry's efforts to reduce aviation emissions. Additionally, the U.S. Treasury Department has raised $556.7 million from the sale of warrants in major U.S. airlines, including American Airlines, which received $12.6 billion in government aid.
Labor relations are also in focus, with the Association of Professional Flight Attendants (APFA) considering a possible strike following contract negotiations. American Airlines has proposed a 17% pay raise in response. Evercore ISI has adjusted its financial outlook for American Airlines, setting a new price target of $178.
InvestingPro Insights:
InvestingPro data shows that American Airlines operates with significant debt, raising concerns about its financial health. The Relative Strength Index (RSI) indicates that AAL's stock is oversold, potentially attracting investors looking for rebounds. The company's market capitalization is $7.37 billion, with an adjusted P/E ratio of 4.71, suggesting a lower valuation relative to earnings than the industry average.
While revenue growth has been modest, short-term obligations exceeding liquid assets may raise liquidity concerns. For more exclusive insights on American Airlines' financials and strategic positioning, InvestingPro offers tips on analyst earnings revisions and profitability predictions. Visit InvestingPro and use coupon code PRONEWS24 for up to 10% off a yearly Pro or Pro+ subscription.
In conclusion, TD Cowen's downgrade of American Airlines reflects concerns about its financial performance and competitive positioning. Investors should consider the risks associated with the airline's aggressive discounting strategies and monitor its ability to generate free cash flow. The move towards cleaner technology and potential labor disruptions add further complexity to the investment outlook for American Airlines.