Is American Airlines Headed for a Breakout? – November 8, 2021

American Airlines Group (AAL) is the world’s largest airline by scheduled revenue passenger miles. The firm’s major hubs include Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. After completing a major fleet renewal, the company has the youngest fleet of U.S. legacy carriers.

The company has benefited with an improvement in air-travel demand in the United States. Delta cases of COVID-19 are falling, which helped the company see a 20% sequential improvement in third-quarter 2021 passenger revenues. AAL expects strong air-travel demand during the holidays in the fourth quarter.

As of the end of the third quarter, the company had $14.5 billion in cash compared to $2.6 billion in short-term debt. Over the past three years, AAL revenues have fallen an average of 17.6% per year. However, analysts expect sales to rise 125.8% year over year in the current quarter. This has led to a Growth Grade of B in our POWR Ratings system.

The stock appears very overvalued with a forward P/E over 1,000. AAL has shown mixed performance since July, but has been trending up since the end of October. This is evident in the chart below.

Take a look at the 1-year chart of AAL below with my added notations:

During the past several months, AAL has formed an important level of resistance at the $22 (red) mark. The stock has tested that area multiple times since the beginning of June and is currently sitting right under that level again. A solid close above $22 should lead to higher prices for AAL.

A solid close above $22 should lead to higher prices for AAL. A long trade could be entered on a breakthrough of that level.

AAL shares rose $0.49 (+2.25%) in premarket trading Monday. Year-to-date, AAL has gained 41.47%, versus a 26.80% rise in the benchmark S&P 500 index during the same period.

Author: Christian Tharp