Deutsche Bank Upgrades American Airlines (AAL) to Buy on Better-than-Expected Fuel Expense Recapture
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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.
Shares of American Airlines closed at $34.24 yesterday.
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