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American Airlines Is among Goldman Sachs’s Top Airline Picks


Dec. 3 2018, Updated 5:50 p.m. ET

Goldman’s bullish stance on AAL

American Airlines (AAL) has remained one of the most battered airline stocks in the year so far due to concerns about its high debt load and rising oil prices eroding profits. However, Goldman Sachs (GS) analyst Catherine O’Brien believes that concerns are overhyped and sees brighter times ahead for the company.

On November 12, she launched coverage on the airline industry with an attractive rating. In her note to clients, she wrote that robust travel demand along with a strong revenues growth trend and cost control measures would lead the airline industry to witness margin expansion in 2019.

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American Airlines makes up to O’Brien’s top stock pick in the industry along with Alaska Airlines (ALK). The analyst initiated coverage on American Airlines with a “buy” rating and a price target of $44.00. She believes that the company’s strategy of expanding in the most profitable hubs, disciplined capacity enhancement, and cost-saving initiatives will help it offset high financial cost burdens.

Credit Suisse is optimistic about airlines

Credit Suisse (CS) analyst Jose Caiado has a similar view on the airline industry (JETS). He also believes strong revenue growth trends and cost controls will push airline margin expansion next year despite a surge in fuel prices.

On November 19, Caiado initiated coverage on the industry with an “overweight” rating. He believes that sustained focus on increasing revenues, maximizing returns, and improving balance sheets have made companies in the space capable of weathering a market recession or a sharp rise in oil prices. He also said that oil prices would be relatively stable while robust air travel demand will provide air carriers an opportunity to raise fares.

The analyst initiated coverage on American Airlines with a “neutral” rating and a price target of $41.00. He believes that the company has the opportunity to increase revenues by further optimizing its route network. However, he is slightly cautious on the stock due to the high leverage balance sheet and a pause in shareholder returns.

In the next article, we’ll see if American Airlines is driving enough traffic to utilize its extra capacity.


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