American Airlines Profits Fall Lower and Lower, and the Stock is Following Suit: Time to Sell AAL?

Late yesterday afternoon American Airlines Group Inc. (AAL) updated its profit outlook for the current quarter, sending shares plummeting. The stock is down 19% in the past week now, and it may be time to sell if you’re holding AAL.

The real concern here is that this is supposed to be the airliner’s best quarter, as we’re approaching the peak of summer air travel here in the US. Yet, American Airlines walked back the guidance they just issued less than a month ago.

Towards the end of April the company issued an adjusted EPS guidance between $1.15 and $1.45. Now, the company will be happy if it even reaches the low end of that range. 

The updated outlook is just $1 to $1.15 a share. This was coupled with a lower expectation for adjusted operating margin, down from a range of 9.5-11.5% to now just 8.5-10.5%. This comes even after fuel costs appear to be dropping.

Analysts are still expecting $1.30 a share, setting up for a disappointing earnings day in a few month’s time. 

There was no rationale given for the change of heart, however, the company did announce that its chief commercial officer is leaving the company after a two-year stint. Vasu Raja will be replaced by Stephen Johnson, who is currently serving as the Vice Chair and Chief Strategy Officer. Johnson will just be an interim placeholder while a permanent replacement is found.

To make matters worse for AAL investors, rival United Airlines reiterated their Q2 guidance yesterday – standing by their adjusted EPS range of $3.75 and $4.25. 

The concern is that American Airlines is losing its market share as it seeks to pivot its strategy and grow its narrow-body fleet and its regional jet fleet. The update suggests that management is not seeing the results they had hoped for – at least, not yet.

AAL has now fallen 26% in the past 3 months and doesn’t appear to be slowing down anytime soon. We’ve taken a closer look at this situation in the VectorVest stock software and see a few reasons it may be time to cut losses on this stock.

AAL Has Excellent Upside Potential and Fair Safety, But Poor Timing is Holding the Stock Back

VectorVest is a proprietary stock rating system designed to save you time and stress while empowering you to win more trades. You’re given everything you need to make calculated, emotionless decisions in just 3 simple ratings: relative value (RV), relative safety (RS), and relative timing (RT). 

Each sits on a scale of 0.00-2.00 with 1.00 being the average, allowing for quick and easy interpretation. It gets even better though. You’re given a clear buy, sell, or hold recommendation for any given stock at any given time based on its overall VST rating. Here’s what we found for AAL:

• Excellent Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (forecasted 3 years out), AAA corporate bond rates, and risk. This makes it a far superior indicator than the typical comparison of price to value alone. As for AAL, the RV rating of 1.50 is excellent. Moreover, the stock is undervalued with a current value of $23.42.
• Fair Safety: The RS rating is a risk indicator computed from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, sales volume, price volatility, and other factors. The RS rating of 0.98 is just below the average but deemed fair nonetheless.
• Poor Timing: The RT rating is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year. This shows you the full picture of a stock’s price trend. AAL has a poor RT rating of 0.53, reflecting its performance over the past few months.

The overall VST rating of 1.03 is just above the average and considered fair for AAL, but the stock is still rated a SELL for the time being as the price continues to plummet. Take a moment to review this free stock analysis for more intel on why it’s time to cut losses before you do anything else.

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VectorVest advocates buying safe, undervalued stocks, rising in price. AAL walked back its profit outlook for the current quarter less than a month after issuing it, sending shares down 19% in the past week. In looking at the VectorVest system, we can see the stock itself has excellent upside potential and fair safety, but poor timing is weighing it down right now.

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