Shares of American Airlines Group (AAL) - Get American Airlines Group Inc. Report were lower on Monday after analysts at Seaport Global downgraded the Dallas carrier to neutral, saying its recovery might take longer than expected.
The firm cut its rating from buy and withdrew its $19 price target.
Its belief in American's recovery story hasn't changed, but the prospect of a longer-than-expected recovery period prompted the investment firm to trim its pretax earnings outlook.
"Covid variants likely delay the international revenue story given vaccine rollouts that lag the U.S., hence the reduced earnings visibility and trim to our pretax earnings outlook," analyst Daniel McKenzie wrote.
"No change to our fundamental outlook that [American Airlines] is a better margin story in this next cycle than investors appreciate, including management's ability to pay down [$8 billion to $10 billion] in debt in 5 years,"
American Airlines shares at last check were down 2.9% at $16.68.
The investment firm expects American's risk/reward profile to look attractive once again with the stock in the $13-to-$14 range, due to $1.3 billion in structural cost savings and incremental revenue from new partnerships with rival carriers JetBlue (JBLU) - Get JetBlue Airways Corporation Report and Alaska Air (ALK) - Get Alaska Air Group Inc. Report.
"Investors with a longer-term investment horizon, say two to four years, could understandably find value on weakness," the analyst wrote.
"Following the recent equity raises, normalized earnings are likely closer to $4/share, which could fetch a stock price of about $27 to $30 over a longer period," McKenzie said.
Before Monday's session, the stock had jumped 11% over the prior three sessions and was up more than 55% from a three-month low.