Key Takeaways
- Jefferies increased AAL price target from $12 to $13 while maintaining Hold rating
- First quarter unit revenue expanded 7.6%, with second quarter guidance pointing to 9.5%–10.5% expansion
- Company launching $1.14 billion bond offering secured by 32 aircraft
- Rising fuel expenses creating margin pressure, management cautions on potential 2026 deficit
- BMO Capital upgraded target to $13.50; Evercore maintains $14.00 valuation
American Airlines delivered first quarter results showing a loss per share of $0.40, surpassing Wall Street expectations of a $0.47 loss. Total revenue reached $13.91 billion, exceeding analyst projections of $13.79 billion.
American Airlines Group Inc., AAL
The carrier achieved 7.6% unit revenue growth during the opening quarter. Management projects second quarter unit revenue expansion between 9.5% and 10.5%.
Following the earnings announcement, Jefferies analyst Sheila Kahyaoglu elevated her valuation on AAL from $12 to $13. The firm continues to assign a Hold rating to the shares.
AAL shares currently hover near $12.10, trading beneath InvestingPro’s Fair Value assessment of $14.05. This spread indicates potential undervaluation at present price levels.
Jefferies established its annual EPS forecast at $0.10, positioned within the carrier’s broad guidance spectrum ranging from -$0.40 to +$1.10. The research firm identified opportunities for enhanced margin performance under favorable operating conditions.
BMO Capital similarly elevated its valuation, advancing from $12.00 to $13.50. BMO highlighted improved yield prospects and noted first quarter performance exceeded projections.
Raymond James maintained its Market Perform stance, recognizing advancement in narrowing the margin differential with established competitors. Evercore ISI preserved its In Line assessment with a $14.00 valuation.
Aircraft-Secured Bond Offering Moves Forward
On Monday, American Airlines initiated a $1.14 billion bond offering to fund acquisition and refinancing of 32 aircraft in its fleet. The transaction takes the form of enhanced equipment trust certificates, commonly known as EETCs.
The primary component consists of a $905 million issuance carrying an average maturity of 7.7 years. Pricing discussions center around a yield near 5.625%.
EETC structures enable sub-investment grade airlines to tap investment-grade debt markets through aircraft collateralization. S&P assigns AAL a B+ corporate rating, four levels beneath investment grade, while the senior bonds in this offering are anticipated to receive an A grade from S&P.
Goldman Sachs, MUFG, and Morgan Stanley serve as lead managers for the bond transaction.
Fuel Expenditures Create Margin Challenges
Escalating oil prices continue applying pressure to airline profitability industrywide. Fuel represents one of American’s most substantial expense categories.
The company revised downward its full-year earnings guidance last week. Management indicated the carrier could finish 2026 with a deficit after incorporating approximately $4 billion in incremental fuel expenses.
American also postponed $300 million worth of aircraft delivery capital expenditures from 2026, creating additional financial flexibility.
The airline intends to expand capacity approximately 4% during the current year, roughly double the industry average growth rate. Jefferies suggested that prevailing macroeconomic conditions may necessitate further moderation of that capacity expansion plan.
According to InvestingPro data, ten analysts have lowered earnings projections for the next reporting period.
AAL shares declined approximately 2.4% on Monday as market participants processed the bond offering details and earnings information.
