Imperial Capital Cuts Price Target on American Airlines (AAL) As Shares Trade Closer to PRASM

Imperial Capital reiterated an Outperform rating on American Airlines (NASDAQ: AAL), and cut the price target to $65.00 (from $73.00), as shares trade closer to PRASM commentary near term. For investors with a longer investment horizon, management indicated it expects PRASM trends to turn more positive moving into the second half of 2016 as near-term revenue trends are likely to face similar headwinds as 2Q15.

Analyst Scott Buck commented, "We are maintaining our Outperform rating, but reducing our one-year price target to $65 from $73. Despite reporting the best quarterly results in the industry’s history and guidance suggesting a record 2015, AAL shares, and those of other airlines, continue to trade closer to PRASM commentary near term. For investors with a longer investment horizon, management indicated it expects PRASM trends to turn more positive moving into the second half of 2016 as near-term revenue trends are likely to face similar headwinds as 2Q15, including increased competitive capacity and weaker macroeconomic trends in South America. However, recent operating results and management commentary continue to provide us with confidence in the company’s ability to generate the highest 2015 operating margins and earnings among the legacy carriers. We continue to view American as an earnings story and believe investors should turn their attention to record operating results rather than PRASM. In addition, American’s no fuel hedging policy is expected to result in approximately $4.8bn in annualized cost savings in 2015, the highest of any U.S. airline. We believe the company will continue to pass a substantial portion of these cost savings on to investors in the way of additional share repurchases and the retirement of high interest debt. Our price target represents about 66% potential upside from the recent share price."

For an analyst ratings summary and ratings history on American Airlines click here. For more ratings news on American Airlines click here.

Shares of American Airlines closed at $39.20 yesterday.

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