The airline industry and American Airlines stock have suffered shocks from both the coronavirus crisis and the Boeing (BA) 737 Max grounding. Is AAL stock a good buy? For the answer, take a look at American's earnings and stock chart.
AAL Stock Fundamental Analysis
Before the sharp decline in travel amid Covid-19, Fort Worth, Texas-based American Airlines (AAL) and its regional carrier, American Eagle, operated 700 flights per day to nearly 350 destinations in more than 50 countries, according to the company.
But as global travel demand collapses during the coronavirus crisis, American and other carriers slashed flight schedules to just a fraction of pre-pandemic levels and don't see a quick return to normal.
Some industry executives have compared the shock to the plunge in demand that was seen after the 9/11 terror attacks.
American had a bullish summer travel schedule, but while May and June revenue was up from March and April, demand fell again in July as Covid-19 cases increased and travel restrictions, both domestically and internationally, were put in place. American sees Q3 system capacity down 60% year over year.
(©Markus Mainka/stock.adobe.com)
In July, American reported mixed second-quarter results. The carrier had a loss of $7.82 per share vs. a profit of $1.82 per share in the year-ago quarter, far worse than the per-share loss of $6.41 analysts expected. Revenue fell nearly 85% to $1.62 billion, above forecasts for $1.48 billion.
Earnings could take another hit after United Airlines (UAL) announced Aug. 30 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 Air Lines (DAL) 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.
Even before the latest industry slump, American Airlines' earnings and revenue had been weak for some time. The IBD Stock Checkup Tool shows that over the last three years, annual EPS is 0%, while revenue has fallen at a negative 1% rate.
AAL Stock Technical Analysis
AAL stock is in a long-term downtrend, and shares hit the lowest level since 2013 earlier this year, according to MarketSmith analysis.
It's been underneath its 40-week moving average since April 2018, and the coronavirus pandemic has further depressed the stock below its 50-day and 200-day lines. AAL stock did rise above its 50-day line in June, after announcing it would expand its routes amid Covid-19 vaccine hope before falling yet again. The stock is now above the 50-day line but is still well under the 200-day line. Growth investors should focus on stocks near new highs, not locked in a pronounced downtrend.
American Airlines stock has a very poor IBD Composite Rating of just 5 out of a best-possible 99, which combines five other IBD stock ratings, as well as a 7 EPS Rating.
(American Airlines)
The relative strength line, which compares a stock's price action to that of the S&P 500 overall, was falling, recently hitting the lowest point since August 2013. But starting in early June, the RS line began to spike before falling again.
AAL stock still has a weak RS Rating of 19. The best stocks usually have a Relative Strength Rating of 80 or higher before they break out to meaningful gains.
Still, shares have an Accumulation/Distribution rating of A-, 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 recently soon after loading up on them, as air travel collapsed.
Covid-19, Boeing 737 Max Hit American Airlines Stock
Even before the pandemic hit, the global grounding of the Boeing 737 Max weighed on AAL stock. The 737 Max has been out of service since 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.
In August, the Federal Aviation Administration outlined a proposed airworthiness directive that will require Boeing and airlines to meet certain conditions before the troubled jet can return to flight.
Boeing CEO Dave Calhoun said that he expects approval from global regulators will be obtained in time to support the resumption of deliveries of the 737 Max during Q4 vs. his April prediction for Q3.
Pilots have asked American for compensation for lost pay due to the lengthy grounding. Southwest Airlines (LUV) CEO Gary Kelly promised employees that he would share any reimbursement the company gets from Boeing.
Meanwhile, airline stocks including AAL stock also collapsed as travel demand plummeted amid the coronavirus pandemic. The federal government had to step in with bailouts.
(American Airlines)
American Airlines reached an agreement with the federal government on April 15 for a $5.8 billion bailout to help keep its employees on the payroll. But Wall Street doesn't think that will be enough.
To help save cash, the carrier said that over 41,000 employees have opted for early retirement, a reduced work schedule, or partially paid leave. Then in August, American warned that some 19,000 employees could be involuntarily furloughed or cut altogether on Oct. 1 without an extension of coronavirus stimulus aid.
The International Air Transport Association also says the recovery in travel has been slower than expected and that it doesn't see global passenger traffic returning to pre-covid levels until 2024, a year later than it previously projected.
AAL Stock Is Not A Buy
Shares are not in any discernible buy zone right now despite the recent rally. Earnings growth has also been weak, recently reversing into deep losses, while demand tumbles amid the coronavirus crisis.
And even after the pandemic eases, the travel sector isn't expected to rebound quickly as different markets come back sooner than others with jurisdictions placing different restrictions on the industry.
The relative strength line for AAL stock is off its lows but remains depressed historically. The 50-day line has halted its nosedive but has a long way to go.
Bottom line: American Airlines stock isn't a buy right now. It suffers from weak technicals and fundamentals along with devastated travel demand.
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.
Reprinted from yahoofinance, the copyright all reserved by the original author.
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