American Airlines stock soars after Q4 results but is ‘dislocating with fundamentals,’ analyst says
Shares of American Airlines Group Inc. soared Thursday after the air carrier reported better-than-expected quarterly results, but Cowen analyst Helane Becker warned investors that prices were “dislocating from fundaments.”
The stock AAL, shot up 22.2% in morning trading, to trade at the highest prices seen since June. It was also on track for the third biggest one-day percentage gains, behind the 35.8% surge on March 24, 2020 and the 41.1% rally on June 4.
Trading volume spiked up to 136.5 million shares by about a half-hour after the open, which compares with the full-day average over the past 30 days of about 53.7 million shares.
“We believe the move is due to the de-risking going on in the market and American remains one of the most consensus short airlines in our coverage (~25% short interest as of 1/15/21),” Becker wrote in a note to clients. “
Becker is referring to the trading dynamic that appears to have contributed to a short squeeze in stocks with a high number of short interest, or bets that prices will fall, such as GameStop Corp. GME, and AMC Entertainment Holdings Inc. AMC,
Don’t miss: It isn’t just GameStop: Here are some of the other heavily shorted stocks shooting higher.
American reported earlier that it swung to a fourth-quarter net loss of $2.18 billion, or $3.81 a share, from net income of $414 million, or 95 cents a share, in the year-ago period. Excluding nonrecurring items, the adjusted loss per share was $3.86, beating the FactSet loss consensus of $4.11.
Revenue fell 64% to $4.03 billion, but beat the FactSet consensus of $3.88 billion. Load factor fell to 63.4% from 84.7%, but topped expectations of 62.9%.
The daily cash burn rate during the quarter was $30 million, which compares with nearly $100 million in April, and the company said it expects to end the first quarter with $15.0 billion in total available liquidity.
“As we look to the year ahead, 2021 will be a year of recovery,” said Chief Executive Doug Parker. “While we don’t know exactly when passenger demand will return, as vaccine distribution takes hold and travel restrictions are lifted, we will be ready.”
Cowen’s Becker said she didn’t believe the stock’s rally was fundamentally driven, as American’s outlook — “sequentially flat to slight worse” — is similar to its peers that have already reported. She reiterated her neutral rating on the stock. (Read more about JetBlue Airways Corp. JBLU, and Southwest Airlines Co. LUV, results, also reported on Thursday.)
“It’s hard to say when the market will look at the company’s fundamentals, but we believe American could take this opportunity to de-lever the balance sheet with an equity offering,” Becker wrote.
Analyst David Vernon at Bernstein said that while American’s stock surge is “more about market dynamics in a heavily shorted name than fundamentals,” he did say there is “some good news” in the company’s results. He reiterated his outperform rating.
“Stable cash burn in a choppy revenue environment and ample liquidity reduces the solvency risk,” Vernon wrote in a research note.
American’s stock has run up 84.8% over the past three months, but has dropped 24.8% over the past 12 months. In comparison, the U.S. Global Jets exchange-traded fund JETS, has rallied 36.0% over the past three months and lost 26.8% over the past year. The S&P 500 index SPX, has advanced 16.0% over the past year.
