NEW YORK (TheStreet) -- American Airlines (AAL) - Get Report shares closed trading down 1.43% to $51.26 on Thursday as the airline sector was hurt by rallying oil prices today due to the escalation of the conflict in Yemen.
Industry standard Brent crude for April delivery is up 4.46% to $59.00 per barrel while West Texas crude is gaining 4.19% to $51.27 per barrel in trading today as the conflict in Yemen escalated today with Saudi aircraft carrying out strikes against rebels in the country.
Houthi rebels, who drove the country's president from the capital in September, have not interfered with oil production as of yet, according to Reuters, but Yemen's minimal contribution to global oil supplies makes the threat of that occurrence a minor issue. More importantly is Yemen's location next to Bab el-Mandeb.
In 2013, 3.8 million barrels a day passed through Bab el-Mandeb, the 18-mile wide choke point that sits between Yemen and Djibouti, and separates the Gulf of Aden from the Red Sea and the Suez Canal to the north. The threat to global supplies of crude sent oil prices jumping today.
Airlines have benefited recently from falling oil prices that have driven down jet fuel and overhead costs for the past eight months.
TheStreet Ratings team rates AMERICAN AIRLINES GROUP INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERICAN AIRLINES GROUP INC (AAL) a HOLD. 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, robust revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to other companies in the Airlines industry and the overall market, AMERICAN AIRLINES GROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The revenue growth came in higher than the industry average of 22.1%. Since the same quarter one year prior, revenues rose by 38.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 171.27% to $804.00 million when compared to the same quarter last year. Despite an increase in cash flow of 171.27%, AMERICAN AIRLINES GROUP INC is still growing at a significantly lower rate than the industry average of 1559.00%.
- The gross profit margin for AMERICAN AIRLINES GROUP INC is currently lower than what is desirable, coming in at 32.26%. Regardless of AAL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AAL's net profit margin of 5.87% compares favorably to the industry average.
- The debt-to-equity ratio is very high at 8.86 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, AAL maintains a poor quick ratio of 0.73, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: AAL Ratings Report