Deutsche Bank Upgrades American Airlines (AAL) to Buy on Better-than-Expected Fuel Expense Recapture

October 17, 2018 5:03 AM EDT
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Price: $21.39 +2.34%

Rating Summary:
    9 Buy, 14 Hold, 8 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 17 | Down: 5 | New: 36
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(Updated - October 17, 2018 6:34 AM EDT)

(updated to add analyst comments)

Deutsche Bank analyst Michael Linenberg upgraded American Airlines (NASDAQ: AAL) from Hold to Buy with a price target of $47.00 (from $40.00).

Linenberg cited a better-than-expected fuel expense recapture.

"As recently as a week ago, we lowered our Dec Q 2018 and 2019 EPS estimates for the sector based on higher fuel prices and the assumption that the industry would recapture approximately 50% of its year-over-year fuel expense increase," the analyst commented. "Subsequently, we have seen both Delta and United release Sep Q results with a recapture rate of 85% and 100%, respectively, far better than even our most optimistic projections."

"While there are numerous revenue levers (and cost levers too) that an airline can pull – i.e., pricing, inventory management, new ancillary initiatives, pricing of ancillaries, etc. – to mitigate the impact of rising costs such as fuel expense, what appears to be the most obvious take-away from the two earnings reports thus far is that the demand environment is very strong," he adds.

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 $34.24 yesterday.

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