American Airlines Is A Strong Buy

A) Introduction

Like its airline rivals, Delta Air Lines (NYSE:DAL), United Airlines (NYSE:UAL), and JetBlue Airlines (NASDAQ:JBLU), American Airlines (NASDAQ:AAL) has been on an absolute tear the last six months. American Airlines managed to scrap its fuel-hedging scheme just in time to take advantage of the collapse in crude oil, and has thus benefited tremendously from lower jet fuel prices. We believe the company offers the rare opportunity in which the stock combines an attractive valuation with strong price momentum, profitability, and growth. Each of these factors is good determinant of future success, and we will outline why as we progress through the analysis. The report will start with a breakdown of American Airlines valuation profile, then will proceed to an analysis of the price and profit growth, followed by an analysis of recent "smart money" transactions, and concluding with some qualitative analysis and conclusions.

B) Growth Breakdown

There are a variety of different growth metrics that have been shown to predict stock returns. Most important among them is price momentum. Winning stocks keep winning (based on six-month price performance), and losing stocks keep losing. American Airlines growth breakdown is shown below:


As we said before, American Airlines has been a beneficiary of lower jet fuel prices and its stock price has reflected that. AAL has gained 30% over the last six months and 42% over the last twelve, which puts it into the top fifth of the entire market in both metrics. AAL grew annual EPS by 135%, which is much stronger than the airline group (34%), sector (19%), and overall market (12%) averages. In testament to the strength of American Airlines company management, AAL returned 95% on equity. This is much higher than the airline group and overall market averages. Overall, we rate American Airlines as a "Strong Growth" company due to its combination of price momentum, EPS growth, and superior ROE.

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Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in AAL over the next 72 hours. The author wrote this article themselves, and it expresses their ...

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