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Is American Airlines Stock a Risky Bet for Investors?

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American Airlines (NASDAQ:AAL) stock fell 3.5% in the pre-market trading session today at 7:55 AM ET. The stock fell due to reports of a spike in COVID-19 cases in the US. A second wave of the COVID-19 pandemic could derail the economic recovery.

According to a MarketWatch report, “With more than half the U.S. states showing increases in COVID-19 infections, New York, New Jersey and Connecticut, which have declining rates of infections, said they will impose a 14-day quarantine on travelers from new hotspot states, including Florida, Texas, Arizona and North Carolina.”

At 7:58 AM ET today, Delta Air Lines (NYSE:DAL) and United Airlines (NYSE:UAL) stocks fell 4.6% and 6.2%, respectively. Meanwhile, the Dow futures fell 1.04%, while the S&P 500 futures fell 0.84%.

Analysts’ recommendations for American Airlines

Based on Reuters data, among the 18 analysts tracking American Airlines stock, 45% recommended a “sell,” 33% recommended a “hold,” and 22% recommended a “buy.” The consensus target price of $13.00 per share implies a downside of 0.3% based on the airline’s closing price on Wednesday. The consensus target price for the stock has risen from $12.75 last month—a growth of 2.0%.

On Wednesday, Cowen analyst Helane Becker reiterated her target price of $20 on American Airlines stock and maintained her “outperform” rating. Becker praised the additional liquidity that American Airlines raised. According to a MarketWatch report, “Early Tuesday, the company said its public offering of 74.1 million shares priced at $13.50, to raise $1.00 billion, and that it priced a public offering of $1 billion in 6.50% convertible senior notes due 2025.”

On Thursday, a UBS analyst decreased the target price on American Airlines stock from $10 to $9.

Growth projections for American Airlines

So far, 2020 hasn’t been a good year for American Airlines. The company’s business has been crippled by the COVID-19 pandemic. American Airlines swung to a first-quarter net loss of $2.2 billion or $5.26 per share from net income of $185 million or $0.41 per share in the first quarter of 2019. Excluding the impact of net special items, the adjusted net loss was $1.1 billion or $2.65 per share. The company had an adjusted net income of $237 million or $0.52 per share in the same period last year. American Airlines’ total sales declined 19.5% YoY (year-over-year) to $8.5 billion in the first quarter of 2020. However, Wall Street analysts expected the company to post an adjusted EPS of -$2.33 on revenue of $8.9 billion in the first quarter of 2020.

Wall Street analysts expect American Airlines to post a non-GAAP EPS of -$7.62 on revenue of $1.3 billion in the second quarter. Analysts also expect the company’s sales to fall by 55.1% YoY in 2020 to $20.5 billion. The sales could rise by 63% YoY to $33.5 billion in 2021. Meanwhile, the non-GAAP EPS will likely decline from $4.90 in 2019 to -$16.27 in 2020. Analysts expect a non-GAAP EPS of -$1.53 in 2021.

Stock returns

American Airlines stock fell 6.9% on Wednesday and ended the day at $13.04. At this closing price, the company’s market capitalization is $5.5 billion. Notably, the stock is trading 62.7% below its 52-week high of $34.99 and 58.1% above its 52-week low of $8.25. The stock has fallen by around 54.5% year-to-date.

Based on the closing price on Wednesday, American Airlines stock was trading 14.4% below its 20-day moving average of $15.23. The stock is also trading 6.0% above its 50-day moving average of $12.30 and 14.9% below its 100-day moving average of $15.32. The airline’s 14-day relative strength index score is 45. Notably, the score indicates that the stock isn’t oversold or overbought.

Read How Strong Is American Airlines’ Liquidity Position?, American Airlines Expects to Burn Zero Cash by End of 2020, and Should You Be Tempted to Sell American Airlines Stock? to learn more.

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