On Monday, UBS increased its price target on shares of American Airlines (NASDAQ:AAL) to $19 from $16, while keeping a Neutral rating on the stock. The adjustment follows the announcement that Citi will become the exclusive provider of AAdvantage credit cards starting in 2026, after acquiring Barclays (LON:BARC)' portfolio of AAL's co-branded cards.
The stock, which has surged 19.1% in the past week and currently trades at $17.4, appears slightly overvalued according to InvestingPro Fair Value metrics. With a market capitalization of $11.43 billion, American Airlines maintains its position as a prominent player in the passenger airlines industry.
The UBS analyst noted that the move to a single credit card provider is expected to drive accelerated loyalty growth for American Airlines. The current setup with dual card providers may have limited the airline's ability to fully leverage its partnership compared to other larger airlines that have exclusive relationships with their banking partners. This strategic shift comes as the company demonstrates strong momentum, with a remarkable 51.3% price return over the past six months.
According to the analyst, this strategic shift is anticipated to lead to improved remuneration growth for American Airlines. Starting in 2026, the exclusive partnership with Citi is likely to contribute to a more substantial portion of the airline's profits.
The analyst also suggested that the change could help reduce the volatility of American Airlines' profit and loss statements, as bank remuneration is generally less susceptible to fluctuations than the core airline business.
With current annual revenue of $53.61 billion and a GOOD financial health score from InvestingPro, the company shows potential for sustainable growth despite operating with significant debt obligations.
The long-term view posits that the exclusive deal with Citi could result in meaningful profit and loss accretion for American Airlines. The increased bank remuneration is seen as a stabilizing factor for the airline's financial performance in the coming years.
The UBS analyst concluded that the upcoming exclusive credit card agreement between American Airlines and Citi is a positive development for the airline, with the potential to enhance its financial metrics and reduce income volatility.
In other recent news, American Airlines has seen several important developments. The airline's earnings per share (EPS) forecast for December has been increased to between $0.55 and $0.75, up from the previous estimate of $0.25 to $0.50.
This revised outlook has led Goldman Sachs to maintain a Neutral rating on the airline's shares, despite adjusting its own December quarter EPS estimate for American Airlines to $0.65 from the earlier $0.35.
In addition, American Airlines has announced a significant 10-year co-brand credit card partnership with Citi, set to commence in 2026. This agreement is expected to enhance the airline's annual cash compensation from its co-brand credit card and other partnerships by 10%.
TD Cowen has raised its stock target for American Airlines, citing this new credit card agreement and ongoing improvements in the airline industry as primary reasons for the raised earnings estimates.
Furthermore, Seaport Global Securities upgraded American Airlines from Neutral to Buy, reflecting confidence in the company's revenue potential and an improved risk/reward scenario. Melius Research has also raised the target for American Airlines based on a positive fourth-quarter update. However, the firm advises caution due to potential costs linked to a new distribution strategy and the company's high net leverage.
Finally, the US Transportation Department is considering a mandate that would require airlines to compensate passengers with at least $200 if they are stranded due to issues within the airline's control. This proposal is part of a broader initiative aimed at enhancing consumer protection for travelers.
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