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On Tuesday, Citi analyst Stephen Trent (NSE:TREN) reaffirmed a Buy rating and a $21.50 price target for American Airlines (NASDAQ:AAL) stock, representing significant upside from the current price of $12.15. The reiteration comes despite acknowledging demand softness in the first quarter, which has been indicated by both American Airlines and its competitors. This softness is attributed to a variety of factors including tariff uncertainties, route cuts, weather events such as the California fires, and several severe aviation incidents across North America since the beginning of the previous month. According to InvestingPro data, the stock’s RSI suggests it’s currently in oversold territory.
Trent pointed out that while there is a general domestic demand weakness, other revenue streams for the airline remain robust. These include premium and international long-haul travel, loyalty revenue, and co-branded card remuneration expected to be strong in 2026. The analyst’s optimism appears supported by the company’s financial performance, with revenue reaching $54.2 billion in the last twelve months and maintaining a healthy gross profit margin of 25%. The analyst expressed confidence in the medium-term outlook for American Airlines, citing management’s renewed focus on corporate customers, minimal fleet renewal requirements, and strong anticipated co-branded card remuneration.
Despite the positive medium-term outlook, American Airlines’ stock experienced a short-term decline of over 20%, with year-to-date returns showing a 28.3% decline. This significant drop led to the airline being removed from Citi’s Focus List. The removal indicates a shift in the stock’s status within Citi’s portfolio recommendations, although the firm’s overall assessment of the stock’s potential remains unchanged. InvestingPro analysis reveals over 10 additional investment tips for AAL, available to subscribers.
American Airlines and its industry peers have been navigating a complex environment, with various external pressures influencing passenger demand. However, Trent’s analysis suggests that the underlying fundamentals of the airline, particularly in relation to its business strategy and revenue diversification, provide a basis for maintaining a Buy rating. InvestingPro’s Fair Value analysis indicates that American Airlines is currently undervalued, with comprehensive insights available in the Pro Research Report, which offers deep-dive analysis of 1,400+ US stocks.
Investors in American Airlines will continue to monitor the company’s performance closely, particularly in light of the recent challenges that have affected the entire aviation sector. The management’s efforts to re-engage corporate customers and the expected benefits from its co-branded card agreements will be key areas of focus in assessing the airline’s ability to recover from the current demand softness.
In other recent news, major U.S. airlines have reported lower-than-expected financial performances for the first quarter. American Airlines Group Inc. has warned of a larger first-quarter loss due to decreased leisure travel demand and the impact of a fatal crash. Delta Air Lines Inc (NYSE:DAL). has significantly reduced its profit forecast, attributing the revision to decreased travel demand and economic concerns, and has adjusted its revenue growth and earnings per share estimates downward. Southwest Airlines (NYSE:LUV) Co. has also lowered its unit revenue guidance, citing factors like a higher completion factor and reduced government travel. In an operational change, Southwest will begin charging for certain checked luggage, ending its longstanding free-bag policy.
Analyst actions have also been noteworthy, with Citi lowering its price target for American Airlines from $23.00 to $21.50, while maintaining a Buy rating. This adjustment reflects anticipated decreases in revenue per available seat mile and fuel prices. Meanwhile, Redburn-Atlantic upgraded American Airlines’ stock rating from Neutral to Buy, increasing the price target to $24, citing potential financial improvements and a new credit card agreement with Citi. Redburn-Atlantic’s analysis suggests that American Airlines’ high financial leverage could lead to significant share price appreciation. These developments provide a glimpse into the current challenges and opportunities within the airline industry.
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