American Airlines Analysts Don't Agree

DALLAS ( TheStreet) -- Analysts are all over the map on what to do with shares in American Airlines parent AMR ( AMR).

Even though the carrier beat estimates and continues to project $500 million annually in new net income by 2012 from two recently approved antitrust immunity agreements, many analysts are put off by the carrier's high labor costs, rising fuel costs -- although that is hardly unique -- and even by the tone of its fourth-quarter earnings conference call on Wednesday.

"We sensed analyst frustration during the earnings call," wrote Avondale Partners analyst Bob McAdoo, in a report. "The company refused to provide any information regarding recent revenue trends and refused to give even general information as to how two newly order Boeing 777-300ER would be used.

"Very little additional information was provided ... other than another recitation of the information in the press release," McAdoo said.

Oddly, despite his comments, McAdoo is among the most bullish analysts on AMR, with a price target of $12 and a market outperform rating. He estimates a current quarter loss of 76 cents and full-year 2011 earnings of 11 cents.

At mid-morning Friday, AMR stock was trading up 12 cents at $7.65. For the current quarter, analysts surveyed by Thomson Reuters are estimating a loss of $1.02 a share. For the full year, the consensus estimate is a gain of seven cents a share.

Following the earnings call, CRT Capital Group analyst Mike Derchin reduced his full-year estimate to a loss of 75 cents from a profit of 55 cents. His price target remains $9 and his rating is neutral. Derchin said "a more conservative oil price assumption" is a key factor in the estimate change, but suggested that American's continuing battle with the global distribution systems poses a risk. "In the short run, AMR's ongoing battle with GDS middlemen favors its competitors, who are displayed on all GDS and most on-line travel agency systems," he wrote.

Like Derchin, Dahlman Rose analyst Helane Becker flipped her full-year estimate to a loss of 75 cents from a profit of 23 cents, citing a projected 4.7% capacity increase and higher fuel costs. "Profitability will be elusive this year given industry high labor costs and the current GDS dispute," Becker said. "We believe there are better investment choices at this time."

UBS analyst Kevin Crissey recently downgraded the shares to neutral. Now, Crissey said, "we are incrementally warmer to the story but AMR is still low on our pecking order given the near-term revenue risks from its distribution negotiations and other structural challenges (labor, fleet.)" Crissey now estimates a 2011 loss of $1.14, better than his previous estimate of $1.42, because "fuel hedges were better than we modeled." His price target is $9.

Soleil Securities analyst Jim Higgins estimates a 2011 loss of 25 cents, but is projecting a 2012 profit of $1.20. "Expected higher revenues offsetting higher fuel prices is the key to the unchanged 2011 estimates" Higgins wrote. "An expectation of continued industry capacity discipline (even if AMR is growing too much, in our view) underpins our forecasting the first annual profit for AMR since 2007." He has a hold rating.

Finally, Deutsche Bank analyst Mike Linenberg is the optimistic contrarian of the group. "We believe AMR is in the midst of a profit turnaround," Linenberg said. "We should see continued profit improvement through 2011." He said the immunized joint ventures with partners British Airways, Iberia and Japan Air Lines, along with American's hub strategy "will contribute to meaningful revenue and cost improvements during the year."

Linenberg estimates a 2011 profit of 80 cents and a first-quarter loss of 95 cents. His price target is $14, which represents an 83% gain from the current price. The estimate is based on 5.8 times EBITDAR.

-- Written by Ted Reed in Charlotte, N.C.

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