Bernstein upgrades American Airways, ‘nearer to a have than a have-not’

Investing.com — Bernstein analysts raised American Airways (NASDAQ:AAL) to Outperform from Market-Carry out on Tuesday, highlighting a mixture of an improved trade backdrop and a brand new co-branded bank card deal that guarantees to generate vital money circulate.

The agency additionally elevated its value goal for the inventory to $24 from $14, reflecting the airline’s improved monetary prospects.

“The pricing and income setting has continued to enhance,” Bernstein wrote, with American Airways rising its fourth-quarter 2024 earnings steering by 73%, now anticipating earnings per share within the vary of $0.55-$0.75. 

Decrease gas prices and stronger pricing are key drivers of the up to date outlook.

The analysts additionally pointed to American Airways’ just lately introduced unique co-branded bank card partnership with Citi, which is able to start in January 2026. 

The deal is predicted to spice up annual remuneration from bank card and different partnerships by 10% from 2024 ranges, with projected income approaching $10 billion. 

In accordance with Bernstein, this might translate into an extra $1.5 billion in pre-tax revenue in comparison with 2024.

The brand new, regular income stream is claimed to handle a serious critique of the airline: its excessive leverage. 

Bernstein estimates the terminal worth of the bank card deal at roughly $12 billion, which “adjustments the story for an airline critiqued for its excessive leverage.” 

The analysts imagine the deal will allow American Airways to pay down debt extra successfully, considerably bettering its monetary outlook.

Whereas challenges in company and company income restoration are anticipated to persist by the top of 2025, Bernstein sees the constant money circulate from the bank card partnership as transformative. 

This growth strikes Bernstein to imagine American Airways is “nearer to a have than a have-not,” solidifying its place as a extra strong competitor within the airline trade.