Bear of the Day: American Airlines (AAL) - Bear of the Day
Thanks to crumbling oil prices and soaring consumer confidence, it was pretty tough to beat airline stocks to end 2014. The space was among the best performers in the final quarter of 2014, and there were high hopes for more growth in 2015 as well.
However, recent trading has been less than stellar for the space, and concerns are starting to crop up for airline stocks. Many are flooding the market with capacity, while the prospect of higher oil prices isn't helping matters either.
While a number of airline stocks have been hit by this trend, one that could be especially weak right now is American Airlines (
). Not only has the stock fallen by over 15% in the last three months, but the outlook is quite poor as well.
AAL in Focus
American is a Texas-based company that is by many measures the world's largest airline. They are best known for their hubs at Dallas-Fort Worth, Miami, Charlotte, and Chicago O'Hare, just to name a few.
The company has recently taken part in the consolidation wave-recently swallowing up US Airways-and has been expanding in order to better compete in this cutthroat market. However, a number of other airlines have been increasing their capacity as of late and there are now questions over AAL's near term outlook, and its ability to live up to current earnings expectations.
Analysts have been slashing their estimates for AAL earnings pretty much across the board lately and you will have a tough time finding a covering analyst who has raised estimates for American in the past two months. In Fact, we have seen ten estimates go lower in the past 30 days for the current quarter and 11 estimates go lower for the current year in the same time frame.
The magnitude of these cuts has been pretty horrendous too, as it appears as though analysts have little confidence in AAL right now. The EPS consensus estimate for the current quarter has fallen from $3.11/share 60 days ago to just $2.66/share today, meanwhile the current year figure has fallen from $10.38/share to $9.20/share in the same time period.
Clearly, analysts are becoming very bearish regarding AAL's earnings prospects in the near term, and the stock has even earned itself a momentum grade of 'F' too. And with these kind of stats, it shouldn't be surprising to note that we have assigned American Airlines a Zacks Rank #5 (Strong Sell) and are looking for more turbulence in its trading ahead.
As you might guess given some of the initial commentary in this article, the broader airline segment isn't very favorably ranked right now. In fact, its Zacks Industry Rank is in the bottom half, which is generally a sign of underperformance. However, there are a few gems in the segment still, including Skywest (
Skywest is a Zacks Rank #1 (Strong Buy) stock, and unlike AAL, it has been seeing rising earnings estimates as of late. The company has also absolutely destroyed earnings estimates as of late including a 1,000% beat for the most recent quarter!
So if you are looking for an airline pick in this rocky market, make sure to consider SKYW over AAL. It appears better positioned to take advantage of current conditions, and could be a higher quality addition to your portfolio right now.