UAL - American Airlines: Debt Reduction In Progress But No Longer At A Discount To Peers

2024-05-23 03:21:20 ET

Summary

• American Airlines' Q1 results showed a small beat in revenue, but earnings per share missed expectations, and revenue per available seat mile fell.
• The company continues to deleverage and reduce debt, but it remains the most indebted among major North American airlines.
• American Airlines faces fierce competition in the airline industry, but its extensive route network and loyalty program provide a competitive edge.
• American Airlines no longer looks undervalued compared to its North American peers, leading to me assigning a "hold" rating.

Introduction

I previously covered American Airlines ( AAL ) back in September last year where I explained my bullish view on the shares. Since then, the shares have risen 2.5% to $14.33, significantly lagging the wider S&P 500 ( SPY ), which has risen by over 19%. This underperformance comes as American Airlines’ revenue fell in Q3 and Q4 2023 against the previous year and only rose marginally in Q1 this year. Interest rates remain elevated against pre-pandemic levels, and, despite debt reduction, interest expenses remain high....

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