American Airlines Group (NASDAQ: AAL) shares rose after Citi analysts upgraded their rating on the stock from Neutral to Buy and raised the target price from $15.13 to $20.
Citi analysts have turned bullish on American Airlines (NASDAQ: AAL) stock, noting that North American network carriers are well-positioned in the post-pandemic landscape. This is due to their diversified revenue sources and strong demand for premium cabin services.
Citi noted that American Airlines stands out amidst this positive outlook. The ongoing focus on financial restructuring, low capex, and industry capacity constraints is expected to support the company.
They wrote,
“Against this supportive backdrop, American Airlines’ ongoing deleveraging focus and continued low capex, along with protracted industry capacity constraints, should continue to support the likes of American Airlines.”
Despite facing challenges following a $31 billion investment in its fleet before the pandemic, American Airlines is anticipated to face lower fleet renewal requirements than initially expected. Citi suggests that the management’s commitment to prioritizing debt reduction reflects a prudent and low-risk approach to capital deployment over the next two to three years.
The shift in work patterns, with fewer consumers adhering to a strict Monday-Friday office schedule, has led to a decline in the traditional “fly out Sunday night, fly home Thursday night” routine. This change has increased the demand for Economy+ type cabin offerings, aligning with the evolving preferences of travelers.
Furthermore, major airlines and their loyalty programs are becoming increasingly attractive partners for big banks’ co-branded card programs, adding to the overall appeal of the industry.
Factors Driving Target Price Increase
Citi predicts a potential increase in the target price of American Airlines, citing expectations of higher revenue per available seat mile (RASM) and lower available seat mile (ASM) growth. The analysts also anticipate a rise in the ’24E ex-fuel cost per available seat mile (CASM), excluding fuel expenses, among other contributing factors.
American Airlines (NASDAQ: AAL) Stock Price Action
AAL stock rose 1.53% to close at $14.56 on Friday. The traders had exchanged hands with 32,706,884 (32.70 million) shares compared to the average daily trading volume of 36.89 million.
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