American Airlines Set For Mixed Earnings Performance?

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American Airlines

American Airlines Group (NASDAQ: AAL) is scheduled to report its fiscal Q3 2022 results on Thursday, October 20, 2022. We expect American Airlines to narrowly beat the consensus estimates for revenues, while missing on earnings. The airline company reported strong results in the last quarter, with the total operating revenues jumping almost 80% y-o-y to $13.4 billion, driven primarily by a strong recovery in passenger segment revenue. Sales from the company’s passenger segment rose from $6.55 billion in Q2 2021, to $12.2 billion in Q2 2022. Cargo & Other sales also witnessed steady growth over this period. Going forward, we expect the passenger segment to continue its growth trajectory in Q3, with another strong YoY sales performance.

Our forecast indicates that American Airlines’ valuation is $17 per share, which is 30% above the current market price of around $13. Our interactive dashboard analysis on American Airlines’ Earnings Preview has more details. 

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(1) Revenues expected to remain slightly above the consensus estimates

American Airlines’ revenues improved nearly 80% y-o-y to $13.4 billion in the Q2 2022, primarily driven by the continued recovery in passenger segment sales since the pandemic. 

  • Sales from the passenger segment rose strongly from $6.55 billion in Q2 2021 to $12.2 billion in Q2 2022, as air travel picked up, combined with a rise in prices.
  • Cargo sales remained roughly flat over this period, but other revenue (related to loyalty programs) rose from $607 million to $871 million over this period.
  • Overall, we estimate this sales growth to persist over the remaining two quarters of 2022.

Trefis estimates AAL’s fiscal Q3 2022 net revenues to be around $8.85 billion, marginally above the $8.82 billion consensus estimate. 

2) EPS is likely to miss the consensus estimates

American Airlines Q3 2022 adjusted earnings per share (EPS) is expected to be -$2.55 per Trefis analysis, below the consensus estimate of -$2.40. While the stellar sales growth in Q2 2022, helped offset the 2.5x YoY rise in fuel expenses, an income tax benefit further helped support net income. However, with the persistence in high crude oil prices, we expect fuel expenses to continue pulling on profitability, and with rising inflation, we expect a jump in other operating heads as well.

(3) Stock price estimate is 29% above the current market price

We arrive at American Airlines’ valuation, using an RPS estimate of around $71.63 and a P/S multiple of just above 0.2x in fiscal 2022. This translates into a price of $17, which is 29% more than the current market price of close to $13.  

Note: P/S Multiples are based on Share Price at the end of the year and reported (or expected) Revenues for the full year 

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 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 AAL Return 10% -27% -72%
 S&P 500 Return 3% -23% 64%
 Trefis Multi-Strategy Portfolio 2% -25% 196%

[1] Month-to-date and year-to-date as of 10/18/2022
[2] Cumulative total returns since the end of 2016

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