Is American Airlines Stock A Buy As Europe Looks To Reimpose Travel Restrictions?| Investor’s Business Daily

The airline industry and American Airlines stock look to rebound from the coronavirus crisis as new routes open up during the peak summer travel season. But the European Union is now recommending restrictions on American travelers. So, is AAL stock a good buy as the summer travel season wraps up? For the answer, take a look at American’s earnings and stock chart.


With business and leisure traffic picking up over the summer, American announced new domestic routes and the slow return of international flights. U.S. Airlines recalled pilots and announced new hiring initiatives to replace pilots that took early retirement during the pandemic.

But with rising delta variant Covid-19 cases in the U.S., the EU recommended Aug. 30 that its member states put restrictions on non-essential travel from the U.S. and other countries with high infection rates.

Southwest Airlines (LUV) warned that bookings were slowing down in late August and analysts say hope is fading for a strong holiday travel season.

American Airlines Fundamental Analysis

American Airlines lost $1.69 a share in Q2. Revenue was $7.48 billion. Wall Street expected American Airlines to lose $2.03 per share, narrowing from a per-share loss of $7.82 a year ago. Revenue was seen rebounding 351% to $7.32 billion.

American turned daily cash burn into a daily cash build of about $1 million in the second quarter. The carrier expects to report a positive average daily cash build for the first time since the start of the pandemic.

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American Airlines expects Q3 revenue to be down 20% vs. Q3 2019, with losses narrowing further.

Even before the pandemic, American Airlines’ earnings and revenue had been weak for some time. The IBD Stock Checkup tool shows that over the last three years, American Airlines’ earnings per share were flat on an annual basis, with revenue falling at an average of 18%. CAN SLIM investing recommends investors look for bottom-line growth of 25% or more.

Southwest Airlines reported mixed Q2 estimates while United Airlines (UAL) topped expectations. 

Airline Industry Outlook

On April 2, the Centers for Disease Control and Prevention said fully vaccinated people are able to travel domestically without Covid-19 testing or the need to quarantine as long as they continue to wear masks while traveling and practice social distancing.

While U.S. airlines open more international flights for leisure travelers, business travel may be depressed long term, as the work-from-home and videoconferencing trends aren’t going away.

In turn, airlines are competing harder for leisure travelers and have aggressively expanded to new routes throughout the pandemic with a focus on destinations appealing to outdoor activities.

But the International Air Transport Association said in late April that it sees global air traffic at 43% of pre-pandemic levels in 2021, down from 51% in a prior forecast last year amid vaccination delays outside the United States.

Meanwhile, United announced last August that it would permanently scrap change fees for domestic flights as it looks to boost bookings amid the coronavirus pandemic. The very next day, American and Delta made similar moves.

Change fees are big business for airlines. The Department of Transportation said U.S. carriers saw $2.8 billion in ticket change and cancellation fees in 2019.

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Technical Analysis

AAL stock was the target of a Reddit short squeeze in late January and early February as a group on the popular message board site looked to take on hedge funds.

Shares may be consolidating into a base, however, the stock needs to make a recovery above key benchmarks before a determination can be made. AAL stock has been below the 10-week line for months and is now below the 200-day line, according to MarketSmith chart analysis.

AAL stock has a poor IBD Composite Rating of just 36 out of a best-possible 99, which combines five other IBD stock ratings, as well as a 25 EPS Rating.

The relative strength line, which compares a stock’s price action with that of the S&P 500 overall, has come well off recent highs.

AAL stock has an RS Rating of 53. The best stocks usually have a Relative Strength Rating of 80 or higher before they break out to meaningful gains.

Shares have an Accumulation/Distribution rating of B, indicating institutional investors are buying up American Airlines stock. That’s despite high-profile investors like Warren Buffett selling off his stakes in airline stocks soon after loading up on them, as air travel collapsed.

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Covid-19, 737 Max Hit American Airlines Stock

The Boeing (BA) 737 Max came out of service after a fatal Ethiopian Airlines crash in March 2019, following a similar deadly crash with Indonesia’s Lion Air in October 2018. Officials have blamed the Maneuvering Characteristics Augmentation System for the crashes, which together killed 346 people.

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But on Nov. 18., the Federal Aviation Administration approved the 737 Max’s return to service.

On Dec. 29, American began offering daily Boeing 737 Max flights between Miami and New York. Despite the lifted grounding, American Air management plans to defer Boeing 737 Max deliveries. Eight planes previously set for delivery in 2021 and 10 set for 2022 will now come as late as 2024, American said Oct. 22.

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Is American Airlines Stock A Buy?

AAL stock is below its key 10-week and 200-day lines and the airline faces longer-term headwinds. Even after the pandemic eases, the travel sector isn’t expected to rebound quickly as different markets come back sooner than others.

Bottom line: American Airlines stock isn’t a buy right now.

While AAL stock isn’t a buy right now, check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

Follow Gillian Rich on Twitter @IBD_GRich for aviation news and more.


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