NEW YORK (TheStreet) -- American Airlines(AAL) - Get Report shares are up 0.34% to $38.93 in morning trading on Thursday as the airline industry recovers from yesterday afternoon's news that the Justice Department opened an investigation into possible price collusion between the top companies.
DOJ is investigating whether the major airlines worked together to limit available seats in an effort to keep fares artificially high.
The agency requested copies of all communications the airlines had with each other, Wall Street analysts, and major shareholders about their plans for passenger-carrying capacity, according to the Associated Press.
However, analysts at Cowen published a note today saying that the allegations were without merit.
"We do not believe this investigation into airline collusion has merit. Airlines have recently been competing in Dallas, Seattle and Chicago to gain market share, often at the expense of PRASM. In 2Q15, industry PRASM is expected to decline due to tough y/y comparisons and discounting in these markets," said the firm.
"We would be buyers of our favorite airline stocks on the weakness caused by this report. Our top picks remain United Continental(UAL) - Get Report, Alaska Airlines(ALK) - Get Report, Delta Air Lines (DAL) - Get Report, and Southwest Airlines(LUV) - Get Report, the note said.
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 impressive record of earnings per share growth, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- AMERICAN AIRLINES GROUP INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, AMERICAN AIRLINES GROUP INC turned its bottom line around by earning $3.92 versus -$8.48 in the prior year. This year, the market expects an improvement in earnings ($9.03 versus $3.92).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. 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.
- AAL, with its decline in revenue, slightly underperformed the industry average of 3.0%. Since the same quarter one year prior, revenues slightly dropped by 1.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- In its most recent trading session, AAL has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The debt-to-equity ratio is very high at 6.85 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 0.83, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: AAL Ratings Report