Here’s Why American Airlines (NYSE: AAL) Stock the Worst of the Bunch

Tuesday, June 23, 2020 | Jea Yu
Here’s Why American Airlines (NYSE: AAL) Stock the Worst of the BunchShares of American Airlines (NYSE: AAL) tend to move in line with peers Delta Air Lines (NYSE: DAL) and United Continental (NYSE: UAL) , but may be setting up for a harder fall. The S&P 500 index (NYSEARCA: SPY) has made a dramatic recovery off its Mar. 23, 2020 lows. The travel and leisure industry arguably suffered the worst damage and was one of the last group of stocks to rally on the restart narrative. Unfortunately, fears of a second wave of COVID-19 spread have stifled upside follow through as the SPY retreats from recent recovery highs. Of the airline group, American Airlines is the worst of the bunch and investors may want to consider unwinding positions on any further rally attempts before it faces possibly disconnecting with its peers.

Company Update

On June 12, 2020, American Airlines provided an update on its operations. The Company expects Q2 2020 revenues to be down (-90%) year-over-year (YoY) with total system capacity down (-75%) YoY.

The Company has received $5.8 billion in federal payroll subsidy from the CARES Act and a $1 billion one-year term loan bringing total liquidity to $11.3 billion. The Company estimates it has $7.45 billion worth of assets that include slots, gates and routes that it can use to collateralize future debt offerings including junk bonds. Cowen raised its price target to $20 due to the network recovery while having enough cash to last nine months at a daily burn rate of $40 million.

Debt-Fueled Buy Backs

American Airlines was exposed during the pandemic to be the least prepared for the economic freeze stemming for isolation mandates keeping travelers locked down at home. With over $25 billion in debt and losses climbing in the millions per-day, iconic investors like Warren Buffet dumped their holdings across the board in the airline sector. The shocking lack of cash exposed how management took on debt to buy back stock, which did little but provide liquidity for sellers as share collapsed during the COVID-19 black swan. This generated lots of controversy with the Treasury Department and Congress extending bailout-like financings. Ultimately, they were banned from using government proceeds to buyback shares in exchange for loans. Countries that are close to eradicating COVID-19 are instituting travel bans to limit a second wave.

September Fallout?

Warren Buffett stated that Berkshire Hathaway (NYSE: BRK.B) had sold all it’s stakes in the four largest airlines including American Airlines after taking nearly (-50%) losses on the investments. The historical metric of legacy airline carriers is that a (-15%) drop in revenues is enough to trigger bankruptcy due to the industry’s tremendous operational and financial leverage. Northwest Airlines fell under this axiom after Hurricane Katrina in 2005. As of the June 2020 update, American Airlines stated their YoY revenues have dropped by (-90%) YoY. Another thing to keep in mind is that employee payroll is the largest expense for the airlines, which has been staved off temporarily by the CARES Act (payroll subsidy) until September 2020. Failing future government financing and grants, their largest expense may push them into bankruptcy. Investors should be aware of this potential ticking time bomb and consider unwinding positions on favorable price rallies.

Here’s Why American Airlines (NYSE: AAL) Stock the Worst of the Bunch

AAL Price Trajectories  

Using the rifle charts on a monthly, weekly and daily time frame provides a broader view of the landscape for AAL stock. The monthly rifle chart triggered a market structure low (MSL) above $22.80. The bulls really botched it setting the bar too high. The monthly stochastic is still under the 20-band with a potential cross up or mini inverse pup if shares fall under the monthly 5-period moving average (MA) price of $13.95 to $13.80 Fibonacci (fib) level. The weekly rifle chart has a stochastic mini pup with support at the 5-pd MA at $14.31 but risks a weekly market structure high trigger under $15.07. The daily is in a make or break with a potential pup breakout if the stochastic forms a mini pup. The upside trajectory on the daily and weekly mini pups target $17.87 fib, $19.88 fib, $21.54 fib  and $22.80 monthly MSL trigger and possible monthly 15-pd MA. The $25.83 fib is the best-case bullish scenario that triggers on a monthly stochastic cross attempt at the 20-band. Investors may want to use these opportunities to unwind positions on upward surges. It’s prudent to keep in mind the downside trajectories for potential stop-loss triggers ahead of the September expiration of payroll subsidies.  

 

Featured Article: Market Capitalization



7 Forever Stocks That Are Never Bad to Buy

Investors thought 2021 would be a less volatile year. That narrative has run into some problems. Sure, all the major indexes are up for the year. And that’s despite the NASDAQ’s gut-wrenching 10% drop in March.

But many investors don’t feel much like celebrating. In fact, many are concerned about the liquidity that continues to be pumped into the stock market. In 2020, the pandemic flooded the economy with $6 trillion dollars of stimulus.

However, in the last few months, the Federal Reserve has introduced another $6 trillion into the economy. We would have stopped counting, but the math is pretty easy. It’s $12.3 trillion that has flooded into the economy.

Eventually, this is going to end badly. But timing the market is an imperfect science particularly when many investors are enjoying the game.

Fortunately, there’s a way to safeguard your portfolio without abandoning equities. That has to do with investing in forever stocks. Forever stocks aren’t magic beans. They don’t go up forever. But they are stocks that have stood the test of time. And investing in these stocks will keep your portfolio heading in the right direction.

With that in mind, we’ve put together this special presentation that showcases seven of these forever stocks. These are all stocks that are household names, but that’s kind of the point. You don’t need special knowledge. You just have to recognize that these are companies that consistently do right by their shareholders.

View the "7 Forever Stocks That Are Never Bad to Buy".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Delta Air Lines (DAL)1.4$44.24-2.6%N/A-2.27Hold$47.84
Compare These Stocks  Add These Stocks to My Watchlist 

MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security. Learn more.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research. As a bonus to opt-ing into our email newsletters, you will also get a free subscription to the Liberty Through Wealth e-newsletter. You can opt out at any time.