American Airlines’ stock price fell by 13% on May 29 after the company cut its second-quarter outlook and admitted to losing business travel to rival airlines. In contrast, United Airlines’ stock was up 2% on the same day. American Airlines had focused on its website for sales but lost corporate business to competitors after the pandemic. The stock has underperformed the S&P 500 over the last three years, with returns of 14% in 2021, -29% in 2022, and 8% in 2023.
The company’s net income expanded by 547% year-over-year to $0.82 billion in 2023 due to an expansion of its operating margin and lower non-operating expenses. American Airlines’ stock has seen a decline of 20% from early 2021 to around $12 currently. The Trefis High Quality Portfolio has outperformed the S&P 500 each year over the same period, providing better returns with less risk than individual stocks. Despite uncertainties like high oil prices and interest rates, American Airlines’ valuation is estimated to be $16 per share, reflecting a potential 30% upside.
American Airlines’ gross profit rose from $27 million in 2021 to $11.8 billion in 2023, with gross profit margin expanding from 0.1% to 22.4%. The operating margin also expanded from -16.9% in 2021 to 7.6% in 2023. Net income increased from $(2.0) billion in 2021 to $822 million in 2023, with a rise in sales contributing to the growth. However, the company’s high debt level of around $40 billion and $2 billion in interest payments remain concerns.
The company expects its 2024 bottom line to be between $2.25 and $3.25 on an adjusted basis, driven by capacity expansion and better yields. American Airlines plans to expand capacity, reduce debt, and capitalize on robust travel demand in the future. Despite these positives, there are near-term headwinds such as losing customers to rivals, elevated fuel prices, and lower yields. With a 15% decline in stock price this year, American Airlines’ market capitalization has decreased, resulting in a very high debt to equity ratio of over 500%.
While American Airlines faces challenges, it is important to consider how its peers are performing in the industry. Evaluating metrics that matter can provide valuable insights for investors. It is crucial to stay informed about American Airlines’ financial performance and market conditions to make informed investment decisions.
