Is American Airlines Stock Expensive?

United Airlines’ Boeing 767-400 ER Extended Range aircraft, powered by two CF6-80 engines, landed at… [+] The Netherlands’ Amsterdam Schiphol International Airport (AMS EHAM) is located in Amsterdam, the Dutch capital. The plane’s registration number is N66057, and it’s a Boeing 767-424(ER). UAL / UA is an American airline based in Chicago, Illinois that connects Amsterdam to Chicago O’Hare, Houston Intercontinental, Newark, Washington Dulles, and San Francisco on a seasonal basis. (Photo courtesy of NurPhoto/Nicholas Economou via Getty Images)
NurPhoto courtesy of Getty Images
[Updated on July 15, 2021]
American Airlines’ (NASDAQ: AAL) stock has dropped from $58 in 2017 to $27 in 2019, owing to growing concerns about the company’s long-term debt obligations. The coronavirus epidemic dragged on shareholder returns even more in 2020, when the business recorded a $1.4 billion operating cash drain. The stock’s market capitalization is $13 billion, which is significantly less than the $22 billion in long-term debt obligations (deducting cash & cash equivalents). The company generated $3.8 billion in cash from operations in 2019, spent $4.2 billion on capital expenditures, and paid $1.2 billion in dividends and share repurchases. While dividends and stock repurchases are suspended until September 2022 due to a CARES Act clause, it would take more than ten years for AAL to repay its debt without paying any dividends or putting up any minimum capex (considering surplus cash after capital expenses ($1.8 billion = $3.8 billion – $2 billion)). As a result, despite the continuous improvement in air travel demand, the stock faces a downside risk. In this interactive dashboard analysis, American Airlines Value, we highlight historical trends in revenues, earnings, and valuation multiples.

Trefis Market Price [Updated 05/12/2021] – Are the odds in American Airlines’ stock’s favor?
Passenger numbers at TSA checkpoints have increased dramatically in recent months as a result of improvements in mass immunization. However, air travel demand is still 50% lower than it was pre-Covid, indicating a concern for American Airlines (NASDAQ: AAL). After two rounds of payroll assistance, the US government has launched a third step, citing the risk of involuntary furloughs due to the large salary expense head. While government assistance programs have boosted investor confidence and pushed airline stocks upward, American Airlines’ low net margins, which are largely due to large borrowing expenses, are anticipated to have a negative impact on long-term shareholder returns. Dividends and share repurchases will be suspended until September 2022, according to the PSP-3 criteria. Trefis believes that AAL stock is a dangerous bet at current levels due to sluggish air travel demand and a gradual macroeconomic rebound. In this interactive dashboard analysis, American Airlines Valuation, we examine historical trends in the company’s revenues, profits, and valuation multiple.
The dip in air travel industry is reflected in second-quarter predictions.
According to the company’s Q1 financial announcement, revenues in the second quarter will be down 40% from pre-Covid levels (Q2 2019). Growth in passenger numbers prompted American’s competitors, including United and Delta, to revise their guidance, with the expectation of positive cash generation in the second half of the year. The recurrence of coronavirus infections in several nations, on the other hand, continues to have an influence on international and business travel demand. The third round of payroll support also suggests that the slump in air travel industry would likely continue this year. In the third phase, the corporation will receive $3.3 billion in help, up from $2.1 billion in the previous quarter.
In the last four quarters, government assistance has helped to offset significant fixed expenditures.
ADDITIONAL INFORMATION FOR YOU
American Airlines reported $17 billion in total sales and $6.5 billion in operating cash outflow in 2020, with PSP-1 contributing $6 billion. Following that, the corporation reported $4 billion in revenue in Q1 2021, and operational cash increased to $174 million as a result of the $2.1 billion in PSP-2. As a result, government assistance has played a significant role in balancing AAL’s salary-related expenses (salary and wages are 30 percent of total revenues). Furthermore, even before the pandemic, the company’s net margins were dragged down by $1 billion in yearly interest expenses, which are projected to have an influence on the balance sheet de-leveraging prospects in the future years.
Is there a more cost-effective alternative to American Airlines? The American Airlines Stock Comparison With Rivals chart shows how AAL compares to its peers on key parameters. Peer Comparisons has a lot more of these kinds of valuable comparisons.
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