Why You Must Hold Onto American Airlines (AAL) Stock Now

American Airlines Group Inc. (NASDAQ:AAL) has its share of positives, despite the prevalent negative sentiment due to rising fuel costs. On the flip side, with the metric persistently increasing and eating into the company’s profits, it is likely that the carrier will pass on the high-cost burden to passengers’ pockets. Notably, during first-quarter 2018 earnings release, American Airlines CEO warned of rising air fares in the near future, which bodes well for airline companies in boosting the top line.

Shares of American Airlines have nudged up 1.3% since the earnings announcement on Apr 26, marginally outperforming the industry’s 1.2% rise.

The company reported better-than-expected earnings per share in the first quarter. Moreover, the bottom line increased 23% on a year-over-year basis despite higher costs. Strong demand for air travel also led to a year-over-year improvement in the top line.

The company’s performance with respect to unit revenues is also encouraging. Total revenue per available seat miles (TRASM: a key measure of unit revenue) improved 3.5% to 15.80 cents in the quarter under review. Moreover, the metric is anticipated to increase 1.5- 3.5% in the second quarter.

American Airlines’ initiatives to reward shareholders through dividends and share buybacks are also impressive. During the first quarter, the company returned $498 million to shareholders via payouts and repurchases. The carrier also announced a dividend of 10 cents per share.

Additionally, we expect an uptick in such shareholder-friendly moves, courtesy of the new tax law. The huge savings from the reduced corporate tax rate will leave more cash in hand for the company to fund its investor-oriented activities.

The company’s employee-friendly schemes are another positive. The staff at American Airlines earned more than $240 million in 2017, as part of the company's profit-sharing scheme.

The company also has a good VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores. Such a score allows you to eliminate pessimism built around the stocks and select winners accordingly. However, it is imperative to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

In light of the above positives, we believe investors should hold on to American Airlines stock for now, despite the threat posed by rising oil prices.

Zacks Rank & Key Picks

American Airlines carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Cathay Pacific Airways Ltd. (OTC:CPCAY) , Gol Linhas Aereas Inteligentes S.A. (NYSE:GOL) and SkyWest, Inc. (NASDAQ:SKYW) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Cathay Pacific Airways, Gol Linhas and SkyWest have rallied more than 12%, 61% and 53%, respectively, in a year.

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