American Airlines (AAL) Stock Surges, Deutsche Bank Upgrades
NEW YORK (TheStreet) -- Shares of American Airlines Group (AAL) - Get Report are surging by 10.11% to $34.31 in late-afternoon trading on Tuesday, as Deutsche Bank upgraded the company to "buy" from "hold," with a $40 price target this morning.
The upgrade is in response to more favorable risk/reward for the Fort Worth, TX-based airline, according to the analyst note.
While negative influences, such as Brexit, mild global economic growth, and and an over-saturated market have all been accounted for in the share prices, short-term improvement in the second derivative of PRASM/RASM (Passenger Revenue per Available Seat Mile/Revenue Per Available Seat Mile) has not been accounted for, Deutsche said.
"Moderating capacity growth, strengthening of key currencies (save for the British pound), higher fuel surcharges, and a decent U.S. economic backdrop should collectively result in less negative PRASM/RASM," the firm noted.
The firm believes the airline has limited downside and thus "investors can afford to be early given the rapidity in which airline share prices can appreciate once it becomes apparent that trends are indeed getting better," Deutsche concluded.
Additionally, the company reported this afternoon that its pre-tax income will rise $200 million in the second half of the year, $550 million in 2017 and $800 million in 2017, Bloomberg's Julie Hyman reported on "Bloomberg Go" this morning.
The increase in income comes as the company announced a new partnership with Citigroup (C) and BarclayCard US (BCS) to expand its AAdvantage credit card program, Hyman said.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate AMERICAN AIRLINES GROUP INC as a Hold with a ratings score of C-. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and a generally disappointing performance in the stock itself.
You can view the full analysis from the report here: AAL
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