Amidst lingering macroeconomic headwinds, leading carrier American Airlines Group Inc. (AAL) has made significant strides in its financial performance. After four years of challenges, the company recently reported a profit for the first quarter of 2023, driven by robust demand for air travel.

In this article, I will discuss the recent financials and key factors influencing AAL’s performance to shed light on the investment prospects of this airline giant. But before that, let’s take a look at the outlook for the US airline industry this year.

According to the International Air Transport Association (IATA), the global aviation industry is anticipated to achieve a net profit of $4.70 billion in the current year, accompanied by a significant surge in passenger numbers, exceeding 4 billion travelers. The gradual relaxation of travel restrictions has unleashed a wave of pent-up demand, further propelling the industry’s recovery.

AAL generated record operating and free cash flow of $3.30 billion and $3 billion in the fiscal first quarter. Moreover, strengthening the balance sheet continues to be a top priority for the company. AAL is approximately 60% of the way to its goal of reducing total debt by $15 billion by the end of 2025.

In addition, based on demand trends and the current fuel price forecast, AAL expects its second-quarter 2023 adjusted earnings per share to be between $1.20 and $1.40. The company expects its full-year 2023 adjusted earnings per share to be between $2.50 and $3.50.

The stock has soared 8.5% year-to-date and 3.6% over the past month to close its last trading session at $13.80.

Here’s what could influence AAL’s performance in the upcoming months:

Robust Financial Performance

AAL’s passenger and other operating revenues rose 42% and 20.4% year-over-year to $ 11.10 billion and $863 million, respectively, in the fiscal first quarter that ended March 31, 2023. As a result, the company’s total operating revenue grew 37% year-over-year to $12.19 billion. Its operating income stood at $438 million, compared to an operating loss of $1.72 billion in the same quarter the previous year.

Moreover, excluding net special items, AAL reported a net income of $33 million, or $0.05 per share, compared to a net loss excluding net special items of $1.51 billion or $2.32 per share in the previous-year quarter.

Improving Balance Sheet

As of March 31, 2023, AAL reduced total debt by over $850 million in the last quarter. It also had reduced its total debt by more than $9 billion from peak levels in 2021.

Moreover, the company ended the quarter with approximately $14.4 billion of total available liquidity, comprised of cash and short-term investments plus undrawn capacity under revolving and other short-term credit facilities.

Lower-Than-Industry Valuation

In terms of forward non-GAAP P/E, AAL is currently trading at 5.23x, which is 67.4% lower than the industry average of 16.03x. Its forward non-GAAP PEG multiple of 0.05 is 96.7% lower than the industry average of 1.50x. Moreover, the stock’s forward P/S and EV/Sales multiple of 0.75 and 0.17 are lower than the respective industry averages of 1.60 and 1.27.

High Profitability

AAL’s trailing-12-month CAPEX/Sales of 4.98% is 71.1% higher than the industry average of 2.91%. Its trailing-12-month cash from operations of $4.32 is significantly higher than the $207 million industry average. Moreover, the stock’s trailing-12-month ROTA of 7% is 3.3% higher than the 6.78% industry average.

POWR Ratings Show Promise

AAL has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AAL has a B grade for Quality, in sync with its high profitability.

The stock has a B for Growth, consistent with its impressive topline results in the previous quarter. In addition, AAL’s lower-than-industry valuation multiples justify its B grade in Value.

AAL is ranked #8 among 27 stocks in the B-rated Airlines industry.

Click here to access additional AAL POWR ratings (Momentum, Stability, and Sentiment).

Bottom Line

AAL’s EBIT and EBITDA have grown at CAGRs of 25.2% and 12.6% over the past three years. It’s revenue and normalized net income have soared at CAGRs of 6.2% and 28.5% over the past three years.

Its domestic and short-haul international revenue continues to perform well, and the airline has seen noticeable strength in long-haul international demand and yield performance this year.

Additionally, the company’s optimistic projections in the upcoming quarter and the full year 2023 demonstrate confidence in its ability to sustain growth. Hence, I think the stock might be a hot buy now.

How Does American Airlines Group Inc. (AAL) Stack Up Against Its Peers?

AAL has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Airlines industry with an A (Strong Buy) and B (Buy) rating: Qantas Airways Limited (QABSY), Air France-KLM SA (AFLYY), and Deutsche Lufthansa AG (DLAKY).

What To Do Next?

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AAL shares were trading at $14.01 per share on Thursday morning, up $0.21 (+1.52%). Year-to-date, AAL has gained 10.14%, versus a 8.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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