A 5% jump on Friday meant shares of American Airlines (NASDAQ:AAL) were one of the best performing of US equities on the day. It came after a fairly volatile previous 4 days, which saw shares fall as much as 10% before rebounding close to the same amount.
Considering the company’s Q1 earnings were released on Thursday, it looks like big swings were due to the big money positioning and repositioning accordingly.
Shares of the major airline had been performing well through most of March, tacking on close to 150% in value in the preceding five months. A 20% drop in the past four weeks however has taken some of the shine off that rally, and investors will be watching the stock closely this week to see how it reacts to last week’s numbers.
Q1 Earnings
In terms of a release date, this earnings report was the first that lapped the COVID pandemic, which had shares in free fall this time last year. But for the most part the numbers were still compared against the final pre-COVID quarter of operations.
Unsurprisingly so, revenue for Q1 2021 was down a hefty 52% on the year and marginally below what analysts were expecting. Bottom line EPS was deep in the red and it could be a while before we see that change.
All that being said, however, there were plenty of positives to take away from the report. Management is expecting Q2 numbers to only be down 40% from the same quarter in 2019, as booking trends continue to point upwards and the global vaccine rollout continues to gather pace.
American’s CEO, Doug Parker, spoke to this optimistic outlook when he said:
“Looking forward, with the momentum underway from the first quarter, we see signs of continued recovery in demand. We remain confident the network enhancements, customer-focused improvements and efficiency measures we’ve put into place will ensure American is well-positioned for the recovery.”
President Robert Isom also left investors with no doubts about their short term goals when he said ‘we intend to have all of our remaining aircraft active this summer and no longer sitting along tarmacs around the country".
Earlier this month we had the news that they’re planning to have all of their furloughed pilots flying again by the end of the summer, and even have plans to hire 300 new pilots by the end of the year and a further 600 by the end of 2022.
They’re also adding up to 150 new routes this summer, building on the optimism seen with their peers, many of whom have been taking similar steps.
For investors willing to take on a bit of risk by buying into the recovery story of stock on the front line of the COVID pandemic, there’s definitely a future upside to be seen here.
Even with the ugly topline and bottom-line numbers, shares have been quickly bought off their lows, suggesting that the worst-case scenario was already priced in after the drop seen in the past month.
Fresh Upgrade
Raymond James saw fit to upgrade American shares in light of the report on Friday, which no doubt helped to drive the bid that had shares going into the weekend at their high of the day. Analyst Savanthi Syth sees an improving profitability profile developing in the short term, with the recent pullback offering a decent entry point to investors.
Technically speaking, shares have been quickly bought any time they come down to $20 in the past week and having failed to break below, it’s fair to think that they’ll now turn to the north and see how far they can get before the bears step in again.
Looking at their daily price chart, you can see an easy enough route for them to get up to $24, and with a steady flow of positive updates from the airline and travel industry, it wouldn’t be unreasonable to think they’ll be back at post-COVID highs in the coming weeks.
There’s just too much positive momentum underway right now, and last week’s earnings have removed a major source of uncertainty.