Why Has Trefis Lowered American Airlines’ Price Estimate From $46 To $37 Per Share?

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American Airlines

American Airlines (NYSE:AAL) released its second quarter earnings on 22nd July 2016 [1]. Despite a continued downtrend in revenues and earnings, American’s stock price gained more than 4% in a single trading day due to the carrier’s decision to revise its capacity guidance in order to manage the increasing fuel expenses and improve its unit revenues. Also, the network carrier slightly revised its capital expenditure to $5.6 billion for the full year, and expects it to be lower than its previous expectation in the coming years. However, the Fort Worth-based airline expects its fuel costs to grow significantly, in tandem with the rising crude oil prices, due to its non-hedging policy. Further, American has started recognizing a tax expense owing to the reversal of its valuation allowance on deferred tax assets in December 2015, effecting its bottom-line adversely. As a result, we have revised downward our price estimate for American from $46 per share, to $37 per share.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for American Airlines

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Notes:
  1. American Airlines Announces Second Quarter 2016 Results, 22nd July 2016, www.aa.com []