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$American Airlines(AAL)$

American Airlines (AAL) Stock Analysis: Is It Finally a Buy?

American Airlines Group (Ticker: AAL) is currently trading at $9.5, and while that may seem like a bargain on the surface, the question we’re diving into today is whether this actually presents a buying opportunity — or a classic value trap.

Let’s break down the performance, financials, and valuation models to determine if AAL is worth adding to your portfolio.

Stock Price History & Performance Overview

Over the past year, AAL has declined by roughly 30%, and is currently down about 45% from its recent highs of around $18 per share. Zooming out further on the MAX chart, we can see the severe impact the 2020 pandemic had on the stock — it plummeted by a staggering 70%, from which it partially rebounded, only to enter a phase of long-term volatility and underperformance.

While the stock has made some attempts to regain its footing, it's clear that AAL hasn’t yet returned to its former highs. That said, this kind of long-term underperformance sometimes creates asymmetric upside potential, especially when a business begins stabilizing operationally.

Is Now the Right Time to Buy?

To answer that, we’ll be doing a deep dive into American Airlines’ financials, including its latest earnings, and then running the numbers through a few key valuation models:

• Discounted Free Cash Flow (DCF) Model

• Ben Graham’s Intrinsic Value Formula

• Comparable Company Analysis

We’ll also be comparing AAL to its major competitors — Delta (DAL), United Airlines (UAL), and Southwest Airlines (LUV) — to see how it stacks up within the airline industry.

Quick Company Snapshot (as of current pricing)

• Share Price: $9.5

• Market Capitalization: $6.5 billion

• P/E Ratio: 8.5 (significantly lower than S&P 500 average ~28)

• Earnings Per Share (EPS): $1.24

• Beta: 1.27 (higher volatility than the market)

• Analyst Consensus Price Target: $18.50

• Dividend: None (suspended during COVID-19 and not yet reinstated)

Financial Performance: A Closer Look

Revenues

American Airlines is now generating $53.66 billion in annual revenue, nearly back to its pre-pandemic highs, and has officially surpassed its 2019 revenue numbers — a promising sign of recovery.

From the most recent earnings:

• Full-Year Revenue: Up from $48.5B to $49.5B

• Quarterly Revenue: Up from $12B to $12.4B

• Passenger Revenue: Main contributor to revenue growth

• Cargo: Down YoY but up QoQ

• Other Revenue Streams: Growing steadily

Operational Metrics

Operational KPIs further support a slow but steady rebound:

• Revenue Passenger Miles: +4% QoQ, +7% YoY

• Available Seat Miles (ASM): Up 2–5%

• Passenger Load Factor: Slight improvement

• Yield: Slightly down

• Passenger Revenue per ASM: Marginally down YoY

• Cargo Metrics: Mixed

• Fuel Consumption: Up (as expected with capacity growth)

So, while not everything is perfect, most operating indicators are trending in the right direction.

Profitability & Cash Flow Analysis

Net Income

After suffering losses in 2020 and 2021, American Airlines returned to profitability in 2023 with net income of $850 million. That’s a significant recovery, though still well below 2019 levels, when the stock was trading near $28 per share and profits were nearly double what they are today.

Free Cash Flow (FCF)

• Positive FCF: $1.3 billion — the highest in recent years

• Operating Cash Flow vs. CapEx:

  Operating cash flow has doubled, while CapEx remains high (but typical for the airline industry)

  This is a key indicator of financial health, especially for capital-intensive industries

Share Buybacks

Prior to the pandemic, AAL was aggressively buying back shares, which helped support the stock price. Post-2020, the company has paused repurchases and in some years, has even issued new shares, slightly diluting shareholders.

Valuation Models

1. Discounted Free Cash Flow (DCF) Model

We ran a few scenarios through the DCF model:

• Revenue Growth Forecast: 5–10%

• Net Margin: 1.59% (conservative average)

• Free Cash Flow Conversion: Adjusted to 60–140% range (based on history)

DCF Valuation Estimates:

• Conservative Scenario: $10–$12/share

• Base Case Scenario: ~$23/share

• Bull Case: $30+ if margin expansion or revenue growth outperforms

The DCF model supports the idea that AAL is undervalued at current prices, especially with even modest improvement in profitability.

2. Ben Graham’s Intrinsic Value Formula

Using a projected earnings growth rate of 10%–15% and a conservative multiplier, the Ben Graham model gives a fair value estimate of $18–$24 per share, again suggesting upside potential from the current levels.

3. Comparable Company Analysis

We compared AAL to:

• Delta (DAL)

• United Airlines (UAL)

• Southwest Airlines (LUV)

Even when excluding LUV (which may skew results due to its unique model), AAL is priced more attractively than DAL or UAL on a valuation basis, though it also lags in profitability and revenue growth.

Historical Performance vs Peers

Here’s how the airline stocks have performed over the past 5 years:

• UAL: +100%

• DAL: +60%

• LUV: Flat

• AAL: Down

This underperformance is stark — but again, it may present a contrarian opportunity if the fundamentals continue to improve.

Market Sentiment

Pros:

• Returning to profitability

• Strong free cash flow generation

• Undervalued across several valuation models

• Analysts’ price target of $18.50 suggests ~60% upside

Risks:

• Operating margins still thin

• High fixed costs and CapEx

• Macroeconomic headwinds (fuel prices, travel demand, etc.)

• History of underperformance relative to peers

Conclusion

Based on the valuation models, earnings trajectory, and revenue recovery, American Airlines is currently trading below its fair value. While it faces some industry-specific risks and competitive pressure, the stock could offer significant upside for investors with a medium-to-long-term horizon.

If you're looking for a deep value play in the airline sector and are comfortable with some volatility, AAL may be worth considering at its current price.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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