American Airlines (NASDAQ: AAL) will report its Q2 2024 results on Thursday, July 18. We expect the company’s revenues to come in at $14.5 billion, slightly above the consensus estimate of $14.4 billion. This would mark year-over-year growth of about 3%. We expect the company to report earnings of $1.15 on a per-share and adjusted basis, above the $1.06 consensus estimate, and at the higher end of the company’s provided guidance. See our interactive dashboard analysis on American Airlines Earnings Preview for more details on American Airlines’ revenues and earnings for the quarter. So, what are some of the trends that are likely to drive American Airlines’ results?
Firstly, let us look at American Airlines’ stock performance. It has seen a fall of about 25% from levels of $15 in early January 2021 to around $11 now, vs. an increase of about 50% for the S&P 500 over this roughly three-year period. Notably, AAL stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 14% in 2021, -29% in 2022, and 8% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that AAL underperformed the S&P in 2021, 2022, and 2023.
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector, including CAT and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AAL face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? We believe AAL stock is undervalued. We estimate American Airlines’ valuation to be $15 per share, reflecting over 30% upside from its current price of $11. Our forecast is based on a 6x P/E multiple for AAL and expected earnings of $2.49 on a per-share and adjusted basis for the full-year 2024. The company has guided for adjusted EPS to be in the range of $2.25 to $3.25 for the full-year 2024.
Looking at the previous quarter, American Airlines’ revenues were up 3% y-o-y to $12.6 billion. This was led by an 8.5% rise in available seat miles, partly offset by a 5% fall in passenger revenue per available seat mile, due to lower yields. The company’s adjusted operating income margin plunged to 0.6% in Q1’24 from 3.7% in the prior-year quarter. This resulted in an adjusted loss per share of $0.34 during the quarter, compared to $0.05 profit in Q1’23.
Coming to the latest quarter, the company will likely continue to benefit from the robust travel demand. However, it doesn’t expect any change in ASM, versus the prior-year quarter. The average fuel price is expected to be around $2.75 per gallon, compared to $2.62 in the prior-year quarter. Its adjusted operating income margin is expected to be between 8.5% and 10.5% in Q2 and its adjusted earnings are expected to be in the range of $1.00 and $1.15, per the company’s provided guidance.