NEW YORK (TheStreet) -- Shares of American Airlines Group (AAL) are down by 0.67% to $43.48 in pre-market trading on Wednesday, as Bank of America/Merrill Lynch downgraded the airline holding company to "neutral" from "buy."
The firm lowered its price target on the stock to $50 from $64.
The downgrade comes as the firm feels American Airlines is most exposed to the industry's capacity risks.
Bank of America/Merrill Lynch believes the company's PRASM may be hit by another 25bps following the almost 150bps this year, theflyonthewall.com reports, adding that the firm is expecting the company's 2016 PRASM to be flat versus +200bps.
Separately, 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 find that the company has favored debt over equity in the management of its balance sheet."
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 ($9.67 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.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Airlines industry average, but is greater than that of the S&P 500. The net income increased by 94.2% when compared to the same quarter one year prior, rising from $480.00 million to $932.00 million.
- 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