American Airlines' profit-view cut draws at least one downgrade as stock swoons

By Steve Gelsi

Seaport cuts rating on AAL to neutral from buy while JP Morgan's Jamie Baker says he's more disappointed than surprised

American Airlines Group Inc.'s stock fell sharply Wednesday after the company cut its performance forecast, causing at least one analyst to lower his rating, while others said they were disappointed in the update.

American Airlines' stock (AAL) was down by nearly 13% on the heels of its weaker second-quarter guidance for the summer air-travel season in the U.S.

Seaport Research Partners analyst Daniel McKenzie downgraded American Airlines to neutral from buy and said he expects the stock to "retrench" at around $9 to $10 a share.

McKenzie said bargain-price rivals Frontier (ULCC) and Spirit Airlines (SAVE) have been shifting growth to Dallas Fort-Worth and Charlotte, N.C., which are the top two hubs for American Airlines.

"Revenue challenges are likely to persist beyond this summer givenescalating ultra-low cost carrier growth at its top hubs," McKenzie said.

"In short, AAL's plans for high single-digit growth this summer are running into challenges and proving premature," McKenzie said.

J.P. Morgan analyst Jamie Baker reiterated an overweight rating and a $24 price target on American and said its diminished view of its performance "speaks far more to its flawed initial forecast than any broad-based shift in passenger demand."

The airline's softer revenue view overshadowed its "slightly better" cost performance, Baker said.

The guidance figures restore American's performance to a level resembling its prior peak and still resting above the trendline, he said. However, investor inquiries regarding "demand falling apart" continue to pop up.

TD Cowen analyst Helane Becker reiterated a buy rating on American Airlines but cut her target price by $2, to $16 a share.

"The business plan will be tweaked again as the focus on U.S. domestic short haul is faltering," Becker said.

Meanwhile, United Airlines Holdings Inc. (UAL) stuck to its second-quarter profit view in a statement late Tuesday. Regarding Delta Air Lines Inc. (DAL), Baker said, "We aren't all that worried."

Meanwhile, Jefferies upgraded United Airlines to buy from hold, but the stock fell in premarket trading.

Analyst Sheila Kahyaoglu increased her price target on United to $65 from $54 and said the carrier's product offering is succeeding, from premium to economy cabin.

"UAL's decision to retain its entire widebody fleet over the pandemic helped achieve record international profits in 2023 with significantly larger schedules than its peers and 2019 levels," Kahyaoglu said.

Prior to Wednesday's moves, American Airlines' stock was down 2.2% in 2024, compared with an 11.2% rise by the S&P 500 SPX. United's stock has risen by nearly 23% this year.

-Steve Gelsi

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05-29-24 1008ET

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