New analysis of $70 PPS possibility for AAL.
American Airlines Group (NYSE: AAL) emerged from bankruptcy protection last year, merged with US Airways Group in December, and issued new stock.
Trends in business and leisure air travel have been improving with the growing U.S. economy, allowing for increased revenue and net income. In addition, cost efficiencies associated with the US Airways merger are also contributing to profitability.
The Street expects American's EPS to grow 77% this year, to $5.15 per share, followed by additional double-digit growth in 2015 and '16. That's a huge leap in earnings.
What's more, the resulting forward price-to-earnings (P/E) ratio is shockingly low at 7.7. Compare that with Southwest Airlines (NYSE: LUV) at 17.6 and Delta Air Lines (NYSE: DAL) at 13.5.
If American's 2014 P/E rises to the low end of its peers' range at 13, that would give AAL a price of $67, representing 68% upside over today's price.
The company has higher cash levels than its peers. Analysts see a dividend increase and a large share repurchase authorization as being likely later this year. And while airlines typically have higher debt levels than other industries, clearly American Airlines is comfortable enough with its debt levels to deploy cash elsewhere.
AAL fluctuated steadily between $33 and $39 for the past four months, but that range has narrowed recently to $37.50 to $39.50. A narrowing of a trading range is a very bullish sign for a pending breakout -- and sure enough, AAL has begun closing at new highs in recent days.
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