Key Takeaways
- Jefferies upgraded AAL price target from $12 to $13 while maintaining Hold rating
- First quarter unit revenue jumped 7.6%, with second quarter projected between 9.5%–10.5%
- Carrier launching $1.14 billion aircraft-backed bond offering
- Rising fuel expenses threaten profitability, potential 2026 loss flagged
- BMO Capital increased target to $13.50; Evercore maintains $14.00 target
American Airlines delivered first quarter results that surpassed Wall Street expectations, reporting a loss of $0.40 per share versus consensus estimates calling for a $0.47 loss. Total revenue reached $13.91 billion, beating the $13.79 billion projected by analysts.
American Airlines Group Inc., AAL
The carrier’s unit revenue expanded 7.6% during the quarter. Management provided guidance for second quarter unit revenue growth in the range of 9.5% to 10.5%.
Following the quarterly report, Jefferies analyst Sheila Kahyaoglu increased her price objective on AAL shares from $12 to $13. Her Hold recommendation remained unchanged.
AAL is presently changing hands near $12.10, trading beneath InvestingPro’s Fair Value calculation of $14.05. This variance indicates potential undervaluation at present price levels.
Jefferies established an annual EPS projection of $0.10, falling within the company’s broad guidance band spanning -$0.40 to +$1.10. The investment firm highlighted opportunities for improved margin execution under favorable market conditions.
BMO Capital similarly lifted its price objective, advancing from $12.00 to $13.50. BMO cited an improved yield environment and noted the 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 target.
Aircraft-Backed Bond Offering Totals $1.14 Billion
Earlier this week, American Airlines initiated a $1.14 billion bond issuance to fund 32 aircraft, including both new deliveries and current fleet assets. The financing package takes the form of enhanced equipment trust certificates, commonly known as EETCs.
The principal tranche comprises a $905 million offering carrying an average maturity of 7.7 years. Initial pricing discussions center around a 5.625% yield.
EETC structures enable sub-investment-grade airlines to tap investment-grade debt channels by pledging aircraft as security. While S&P assigns AAL a B+ corporate rating, sitting four levels beneath investment grade, the senior bonds in this transaction are anticipated to receive an A rating from S&P.
Goldman Sachs, MUFG, and Morgan Stanley serve as lead underwriters for the bond transaction.
Escalating Fuel Expenses Pressure Margins
Increasing oil prices continue pressuring airline profitability industry-wide. Fuel represents one of American’s most substantial operating expenses.
The previous week, management reduced its full-year profit forecast. Leadership cautioned that fiscal year 2026 could conclude with a net loss following the absorption of approximately $4 billion in incremental fuel expenditures.
American simultaneously deferred $300 million in aircraft delivery capital spending from 2026, creating additional financial flexibility.
The airline intends to expand capacity roughly 4% during the current year, approximately double the industry-wide expansion rate. Jefferies indicated that prevailing macroeconomic conditions likely necessitate additional downward adjustment to capacity growth plans.
Based on InvestingPro intelligence, ten analysts have lowered earnings forecasts for the forthcoming reporting period.
AAL shares declined approximately 2.4% on Monday as investors digested the bond offering announcement and earnings developments.
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