NEW YORK (TheStreet) -- American Airlines Group (AAL) shares are up 3.37% to $42.96 in early market trading on Monday following a Barron's report Saturday suggesting that airline stocks could gain by as much as 50% in a year.
This optimistic outlook is due to falling jet fuel prices due to the global supply glut of crude, economic growth and lessons the industry has learned about the negative impact of increasing capacity too quickly.
"Fortunately for American, its policy of not hedging fuel costs has won it the biggest savings of the group -- about $4 billion a year. Management has scaled back plans for capacity additions and delayed some plane orders. That puts the company in an excellent position to retire high-interest debt and buy back shares for a song," said Barron's writer Jack Hough.
The report estimated that American will save about $4 billion on fuel a year.
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 3.1%. 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.
- AAL has underperformed the S&P 500 Index, declining 6.29% from its price level of one year ago. 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