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Here's Why Investors Should Avoid American Airlines (AAL) Now
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American Airlines’ (AAL - Free Report) financial stability is increasingly jeopardized by high operating expenses and low liquidity. Elevated costs, including labor, fuel, and repairs and maintenance, further strain the company’s bottom line. Also, low liquidity impedes its ability to meet obligations, making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
Southward Earnings Estimate Revision: The Zacks Consensus Estimate for current-quarter earnings has been revised 79% downward over the past 90 days. For the current year, the consensus mark for earnings has moved 58.5% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank: AAL currently carries a Zacks Rank #5 (Strong Sell).
Unimpressive Price Performance: American Airlines has declined 37.9% in the past year against its industry’s 12.8% growth.
Image Source: Zacks Investment Research
Bearish Industry Rank: The industry to which AAL belongs currently has a Zacks Industry Rank of 231 (out of 251). Such an unfavorable rank places it in the bottom 8% of Zacks Industries.Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Other Headwinds: The northward movement in operating expenses is adversely impacting American Airlines’ bottom line. This surge in operating expenses is primarily driven by the increase in fuel and labor costs.
In the second quarter of 2024,labor costs, comprising salaries and benefits (accounting for 30.5% of the total operating expenses), rose by 9% year over year to $4 billion, fuel costs surged by 12.4% to $3 billion, and maintenance, materials and repairs increased 17.6% year over year.
The company trimmed its earnings per share forecast for full-year 2024, citing pricing pressure with excess capacity characterizing certain markets. American Airlines’ management now expects current-year adjusted earnings per share between 70 cents and $1.30 (earlier expectation was in the range of $2.25-$3.25 per share).
AAL exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.60, raising liquidity concerns. A current ratio of less than 1 indicates that the company does not have enough cash to meet its short-term obligations.
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Kirby Corporation (KEX - Free Report) .
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 3.3% in the past year.
KEX holds a Zacks Rank #2 (Buy) at present andhas an expected earnings growth rate of 40% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 8.7%. Shares of Kirby have climbed 41.1% in the past year.
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Here's Why Investors Should Avoid American Airlines (AAL) Now
American Airlines’ (AAL - Free Report) financial stability is increasingly jeopardized by high operating expenses and low liquidity. Elevated costs, including labor, fuel, and repairs and maintenance, further strain the company’s bottom line. Also, low liquidity impedes its ability to meet obligations, making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
Southward Earnings Estimate Revision: The Zacks Consensus Estimate for current-quarter earnings has been revised 79% downward over the past 90 days. For the current year, the consensus mark for earnings has moved 58.5% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank: AAL currently carries a Zacks Rank #5 (Strong Sell).
Unimpressive Price Performance: American Airlines has declined 37.9% in the past year against its industry’s 12.8% growth.
Image Source: Zacks Investment Research
Bearish Industry Rank: The industry to which AAL belongs currently has a Zacks Industry Rank of 231 (out of 251). Such an unfavorable rank places it in the bottom 8% of Zacks Industries.Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Other Headwinds: The northward movement in operating expenses is adversely impacting American Airlines’ bottom line. This surge in operating expenses is primarily driven by the increase in fuel and labor costs.
In the second quarter of 2024,labor costs, comprising salaries and benefits (accounting for 30.5% of the total operating expenses), rose by 9% year over year to $4 billion, fuel costs surged by 12.4% to $3 billion, and maintenance, materials and repairs increased 17.6% year over year.
The company trimmed its earnings per share forecast for full-year 2024, citing pricing pressure with excess capacity characterizing certain markets. American Airlines’ management now expects current-year adjusted earnings per share between 70 cents and $1.30 (earlier expectation was in the range of $2.25-$3.25 per share).
AAL exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.60, raising liquidity concerns. A current ratio of less than 1 indicates that the company does not have enough cash to meet its short-term obligations.
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Kirby Corporation (KEX - Free Report) .
C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 27.4% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 3.3% in the past year.
KEX holds a Zacks Rank #2 (Buy) at present andhas an expected earnings growth rate of 40% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 8.7%. Shares of Kirby have climbed 41.1% in the past year.