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Summary

  • American Airlines reported strong revenue numbers for June.
  • The revenue and margin numbers confirm original investment thesis.
  • American Airlines remains an attractive stock with up to 50% upside.

For the month of June, American Airlines (NASDAQ:AAL) reported solid results prior to the opening on Wednesday that sent the stock higher by 4.3%. The airline stocks had been under pressure for a few days due to the weak results by European airlines and disappointing numbers by Delta Air Lines (NYSE:DAL). The strong rebound by American Airlines was partially due to a relief rally after the stock plunged from over $44 at the end of June to trade below $38 the previous day.

For the month of June, American reported that revenue passenger miles only increased 1.0% versus last year while the load factor declined 1.9 points to 85.0%. Those numbers weren't so impressive, but the airline did much better with the revenue and margin numbers. For the month, the passenger revenue per available seat mile, or PRASM, was up on average a strong 6% versus the prior year. In addition, the company expects the pre-tax margin for the quarter to reach 12% to 13%.

The positive numbers back the expectations that American Airlines will earn more than $6 in 2015. The stock continues to trade at less than 7x the analyst estimates of $6.16 for 2015. It offers a very attractive valuation compared to Delta Air Lines trading at over 10x earnings, especially considering Delta only reported a 4.5% gain in PRASM for June. The original target of $60 provided by York Capital back in March and our suggestion that American Airlines could hit $72 based on a 12 multiple of 2015 earnings stands. Investors should continue to use dips in the stock to load up.

Source: Update: American Airlines June Traffic Report