Shares of American Airlines (NASDAQ:AAL) have been a big laggard in 2019. Most major stock indices are up strongly since the beginning of the year and trading near all-time highs. AAL stock, however, has basically treaded water and consolidated most of the year. Cheap comparative valuations, solid fundamentals and improving technicals make American Airlines attractive at current levels. Time to book a flight on AAL stock as it readies for lift off.
American Airlines will report earnings before the market opens on July 25. Expectations are for $1.77 in EPS on $11.96 billion in revenue. AAL earnings have beaten expectations each of the past four quarters and I look for another beat this quarter as well. The company last week said TRASM (Total RevenueAvailable Seat Mile) for the second quarter would come in at 3-4% growth, higher than the previously expected 1-2% growth. This should bleed through to better earnings for AAL.
AAL stock is certainly not expensive on a valuation basis. The TTM P/E is below 8 and near the cheapest levels of the year. This is a major discount fellow competitor United Airlines (NYSE:UAL) which has an EPS approaching 10. A slight multiple expansion for AAL stock to even 9 would provide a significant boost to the shares.
American Airlines stock is looking attractive from a technical perspective. Shares are poised for an upside breakout after holding support at the $30 area. AAL stock is back above the all-important 200 day moving average at $33.53. Both momentum and MACD remain positive. After a series of lower highs, American Airlines stock is on the cusp of making a new relative high.
American Airlines been a huge underperformer to rival Delta Airlines (NYSE:DAL) as seen in the chart. AAL stock is up just 5% year-to-date compared to a hefty 25% gain for DAL stock in the same time period. Expect that divergence to start to converge with American being a relative outperformer to Delta over the coming weeks.
It is getting more and more difficult to find value stocks in the current stock market environment. Investors should consider adding AAL stock to their portfolio on any weakness. An initial price target would be the 2019 highs near the $37 area. The current dividend yield of 1.19% provides an additional income stream as well.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at email@example.com.