Stop selling American Airlines stock as it remains “heavily short,” says analyst

American Airlines Group Inc. shares have fallen sharply over the past week, and longtime bearish analyst Scott Group of Wolfe Research said it’s time to stop selling.

Scott raised his rating for the Texas-based airline to peer performance after underperforming for at least the past three years. He removed his share price target, while his previous $14 target had made him the most bearish of the 22 analysts polled by FactSet.

His upgrade comes after the Stock AAL,
fell 14.9% over the past six sessions to close at $14.12 on Thursday, or just a fraction above its previous target. This compares to a 11.6% decline in US Global Jets exchange-traded fund JETS.
and a 0.8% loss in the S&P 500 index SPX,
about the same time.

And despite this recent sell-off, short rates, or bearish bets, on the stock remain relatively high.

“[American’s stock] remains heavily short with 10% short interest, but has consistently performed estimates and hit/beaten over the past few quarters while running fairly clean operations,” Scott wrote in a note to clients.

The company has been profitable for the past three quarters and has beaten earnings expectations in seven of the last eight quarters.

Short interest, or the number of shares sold short, equates to 9.77% of the free float, or shares available for public trading, according to the latest stock market data. This compares to 3.41% for Delta’s stock and 4.39% for United’s stock.

Some on Wall Street view high short interest as a bullish sign, as those who have made these bets must buy back the stock if it starts to rise, an action known as short-covering. The “meme stock” craze had to do with heavily discounted stocks. Read more about how short selling works.

Additionally, Scott said that while American Airlines still carries a heavy debt load, he believes the company will significantly reduce its debt this year as he expects free cash flow to top $2 billion in 2023 becomes.

And part of the reason for its earlier bearish stance was that American’s margins had previously “strongly and consistently” lagged those of competitor Delta Air Lines Inc. DAL.
and also “consistently lagged behind” that of United Airlines Holdings Inc. UAL,

“But in recent quarters, the margin gap vs. [Delta] has narrowed significantly while remaining relatively choppy [United]’ Scott wrote in a note to clients.

American Airlines stock, which fell 0.1% premarket on Friday, is up 10.2% in the three months to Thursday, while the Jets ETF is up 2.4% and the S&P 500 is up 2.8% % increased.

Source :

Leave a Reply

Your email address will not be published. Required fields are marked *