American Airlines (AAL) is gaining from an uptick in air-travel demand (particularly on the leisure front). The upsurge in passenger volumes makes the AAL stock an interesting investment opportunity.

Let’s delve deeper to unearth the factors working in favor of the Zacks Rank #2 (Buy) stock.

Northward Earnings Estimates: The Zacks Consensus Estimate for current-quarter and current-year earnings has been revised 45.4% and 29.4% upward, over the past 60 days, respectively. Such favorable estimate revisions reflect brokers’ confidence in the stock.

Given the wealth of information at the brokers’ disposal, it is in the best interest of investors to be guided by their expert advice and the direction of their estimate revisions. This is because it serves as a key indicator in determining the price of a stock.

Upbeat Air-travel Demand: American Airlines is seeing steady recovery in domestic and international air-travel demand.

Owing to upbeat air-travel demand, operating revenues in first-quarter 2023 increased 37% year over year. Passenger revenues, accounting for the bulk of the top line (91.1%), increased to $11,103 million from $7,818 million a year ago. To match the high demand, AAL is increasing capacity. 

AAL expects system capacity for the June-end quarter to increase 3.5-5.5% from the second-quarter 2022 reported level. Management projects second-quarter 2023 earnings per share (excluding net special items) between $1.20 and $1.40. AAL estimates 2023 adjusted earnings per share of $2.50-$3.50.

Impressive Price Performance: Driven by the rosy air-travel demand scenario, shares of AAL  have gained10.6% year to date compared with its industry’s appreciation of 6.1% in the same timeframe.

(Click on image to enlarge)

Image Source: Zacks Investment Research

Bullish Industry Rank: The industry, to which AAL belongs, currently has a Zacks Industry Rank of 37 (of 250 plus groups). Such a solid rank places the company at the top 15% of the Zacks industries. Studies show that 50% of a stock price movement is directly tied to the performance of the industry group that it hails from.

An ordinary stock in a strong group is likely to outperform a robust stock in a weak industry. Therefore, taking the industry’s performance into consideration becomes imperative.

Other Stocks to Consider

Investors interested in the Zacks Airline industry may also consider stocks like Copa Holdings (CPA) and United Airlines (UAL), each sporting a Zacks Rank #1 (Strong Buy) at present. 

Copa Holdings is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased 28.5% from first-quarter 2019 levels due to higher yields.

CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% from the comparable quarter of 2019 on higher cargo volumes and yields. Copa Holdings' fleet modernization and cost-management efforts are commendable. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 6.15% upward over the past 60 days.

United Airlines is seeing steady recovery in domestic and international air-travel demand. Owing to robust air-travel demand, UAL expects revenues for the June-end quarter to grow 14-16% year over year.

For 2023, United Airlines expects capacity to be in the high teens. The Zacks Consensus Estimate for current-year earnings has been revised 9% upward in the past 60 days.

More By This Author: