On Monday, Citi updated its financial model for American Airlines (NASDAQ:AAL), resulting in an increased price target on the airline's shares. The new target is set at $16.00, up from the previous $13.50, while the firm retains a Buy rating on the stock.
The adjustment to the price target reflects several key factors. Citi's analysis now includes a more optimistic projection for revenue per available seat mile (RASM) growth in 2025, reduced expectations for fuel costs, and the integration of third-quarter 2024 results into their evaluation.
Citi has also revised its earnings per share (EPS) estimates for American Airlines. The previous figures have been updated from $1.23 for the current year, $1.72 for the next year, and $2.92 for 2026 to new estimates of $1.44, $2.07, and $3.14, respectively. Despite these increases, Citi has stated that the airline's shares are still valued at a modest discount compared to the target valuations for its network peers.
The methodology behind the new price target involves applying a 7.85x price-to-earnings (P/E) target multiple to the higher expected EPS for 2025. This calculation underpins the increase in the target price for American Airlines' shares, moving it from $13.50 to the new $16.00 level.
Citi's revised outlook for American Airlines comes as the industry continues to navigate a dynamic operating environment, with factors like fuel prices and travel demand playing significant roles in shaping airline performance.
In other recent news, American Airlines has reported robust third-quarter earnings, beating estimates with an adjusted pretax profit of $271 million and earnings per share of $0.30. Total revenue reached $13.6 billion, marking a 1.2% increase year-over-year.
The company also revealed plans to reduce total debt by at least $13 billion by the end of 2024. According to recent analyst notes, TD Cowen has maintained a Hold rating on American Airlines while raising the price target from $9.00 to $10.00, citing the airline's potential for network and long-term growth.
BofA Securities also increased its price target to $10.00, maintaining an Underperform rating due to valuation and net leverage considerations. Both firms highlighted the airline's efforts to reclaim its share of the managed corporate market and the anticipated benefits of a new credit card agreement in 2025. American Airlines is also focusing on strategies to improve financial performance, including cost savings and growth in premium seating by 20% by 2026.
InvestingPro Insights
Recent data from InvestingPro adds depth to Citi's optimistic outlook on American Airlines (NASDAQ:AAL). The company's market capitalization stands at $8.64 billion, reflecting its significant presence in the Passenger Airlines industry. AAL's P/E ratio (adjusted) for the last twelve months as of Q3 2024 is 9.33, which is considerably lower than the current P/E ratio of 31.38, suggesting potential undervaluation relative to recent earnings.
InvestingPro Tips highlight that AAL has seen a strong return over the last three months, aligning with Citi's increased price target. Additionally, analysts predict the company will be profitable this year, supporting Citi's upward revision of EPS estimates. However, it's worth noting that AAL operates with a significant debt burden, which investors should consider alongside the positive outlook.
For a more comprehensive analysis, InvestingPro offers 11 additional tips for American Airlines, providing investors with a broader perspective on the company's financial health and market position.
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