American Airlines (AAL – Free Report) , one of the world’s leading airline companies, is set to report first-quarter 2024 results on Apr 25, and as always, market participants are eagerly waiting for the release. Some investors may be deliberating whether to purchase the stock of this airline heavyweight before Thursday or wait for a better entry point.
Impressive Price Performance
Driven by the buoyant scenario with respect to air travel demand, the stock has performed impressively on the bourse of late. The AAL stock has appreciated 28.9% over the past six months, handily topping the S&P 500’s 20% growth.
Strong Passenger Revenues Likely to Aid AAL’s Q1
The stronger-than-expected recovery of air-travel demand following the end of the pandemic has been driving airline stocks including American Airlines. While air-travel demand is particularly strong on the leisure front, it is heartening to note that business demand has made an encouraging comeback. With air-travel demand having improved, AAL is looking to add routes and broaden network. The carrier’s debt-reduction efforts are impressive as well.
We expect upbeat air travel demand, driven by healthy bookings, to have boosted American Airlines’ top-line performance in the to-be-reported quarter. Passenger revenues, which account for the bulk of the top line, are likely to have been high, strengthening total revenues. Per our model, passenger revenues in the first quarter of 2024 are likely to have increased 2.5% from first-quarter 2023 actuals.
What the Zacks Model Unveils
Our proven model predicts earnings beat for AAL this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is the case here, as American Airlines has an Earnings ESP of +6.51% and carries a Zacks Rank #3 at present.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Not All Roses, Some Brickbats as Well
Despite the above-mentioned positives and the likely earnings beat, the AAL stock has its share of headwinds. The increase in oil price is not a welcome development for the company as fuel expenses represent a key input cost for any airline player. The northward movement in crude price is primarily due to the ongoing production cut by major oil-producing nations and geopolitical tensions. Notably, oil price increased 16% in first-quarter 2024.
The northward movement in expenses on labor are also hurting AAL’s bottom line by pushing up operating costs. As a result of the deal with pilots inked last year, labor costs are escalating. Due to high labor costs, management expects cost per available seat miles (adjusted) in first-quarter 2024 to increase 2-4% from first-quarter 2023 actuals. AAL’s liquidity position is also a concern.
Based on the trailing 12-month EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), a commonly used multiple for valuing airline stocks, AAL is currently trading at 5.33X, above the 4.59X five-year median.
Final Thoughts
In view of this write up, we can safely conclude that investors should refrain from rushing to buy AAL, which is facing quite a few challenges, before Thursday. Instead, they should monitor the developments pertaining to the stock closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains.
Other Stocks Likely to Beat on Q1 Earnings
Here are a few stocks from the broader Zacks Transportation sector that investors may consider, as our model shows that these have the right combination of elements to beat their first-quarter 2024 earnings:
Expeditors International of Washington (EXPD – Free Report) has an Earnings ESP of +6.39% and a Zacks Rank #2. EXPD is scheduled to report first-quarter 2024 earnings on May 7.
The Zacks Consensus Estimate for first-quarter earnings has been revised 1.85% upward over the last 60 days. EXPD has surpassed the Zacks Consensus Estimate for earnings in only one of the preceding four quarters and missed thrice, the average miss being 3.37%.
Kirby (KEX – Free Report) currently has an Earnings ESP of +2.44% and a Zacks Rank #3.
Kirby is scheduled to release first-quarter earnings on Apr 25. The Zacks Consensus Estimate for KEX’s quarterly earnings is pegged at 96 cents per share, indicating a 41.2% increase from the prior-year reported figure.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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