Here's Why American Airlines Should Grace Your Portfolio
Zacks Investment Research | Jun 29, 2017 09:12PM ET
Shares of the American Airlines Group (NASDAQ:AAL) have performed very well, outperforming the Zacks categorized Transportation-Airline industry in the last three months. Shares of this Fort Worth, TX-based carrier have rallied 17.6%, compared with the industry’s gain of 10.4% in the same period.
Encouraging Unit Revenue Guidance
The stock has been buoyed by the company's bullish view on unit revenue and adjusted pre-tax margin for the second quarter of 2017. Total revenue per available seat mile (TRASM: a key measure of unit revenue) is expected to increase in the band of 3.5% to 5.5% on a year over year in the same quarter.
Notably, the company had also performed well in the first quarter with respect to TRASM. The metric had improved 3.1% in the quarter. In fact, this quarter marked the second successive one in which the metric grew on a year-over-year basis, since the fourth quarter of 2014.
Pre-tax margin (excluding special items) is projected to be in the range of 12% to14% in the second quarter of 2017.
Other Bullish Factors
We are impressed by the company’s efforts to reward shareholders through share buybacks and dividend payments. During the first quarter, the company returned $563 million to its shareholders through the payment of $51 million in dividends and buyback of shares worth $512 million. The carrier has returned more than $10.2 billion to stockholders through share repurchases and dividends since mid-2014.
Moreover, this TX-based carrier’s efforts to modernize its fleet are impressive. Its May traffic report also raises investors’ optimism in the stock.
In fact, the company’s expansion plans are encouraging as well. To this end, American Airlines recently purchased a minority stake in China Southern Airlines (NYSE:ZNH) . It has invested approximately $200 million in the Hong Kong-listed shares of China Southern. We believe, this move to expand in China to be prudent one as the country is projected to become the largest aviation market by 2024.
Estimate Revisions
Upward estimate revisions reflect optimism in a stock’s prospects. American Airlines scores impressively on this front with the Zacks Consensus Estimate for the second quarter climbing 6.9% over the last 60 days. Likewise, the Zacks Consensus Estimate for the full-year 2017 has moved up 5.2% to $4.82 per share in the last two months.
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Earnings History & Bullish Q2 Expectations
American Airlines has an impressive earnings track record having outshined the Zacks Consensus Estimate in three of the last four quarters with an average beat of 20.24%. In fact, we expect the company to perform impressively in the second quarter of 2017 as well.
Our quantitative model shows that American Airlines is likely to beat earnings in the second quarter because it has the perfect combination of two key ingredients – a positive Zacks Investment Research
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