Is American Airlines Stock Too Cheap to Ignore After Beating Q2 Expectations?

American Airlines AAL stock was down as much as 10% in Thursday morning's trading session despite pleasantly exceeding Q2 top and bottom-line expectations.

This comes as the largest domestic airline carrier gave a cautious outlook, reinstating but narrowing its full-year EPS guidance amid ongoing uncertainty in travel demand.

That said, American Airlines stated it has moved past the brunt of the economic impact, which begs the question of whether AAL shares are too cheap to ignore after dropping more than 30% this year to around $11.

American Airlines Q2 Review

Reporting Q2 sales of $14.39 billion, American Airlines’ top line slightly expanded from $14.33 billion in the comparative period and edged estimates of $14.28 billion. Thanks to disciplined cost control, which was aided by lower fuel costs, American Airlines' Q2 earnings of $0.95 per share comfortably surpassed expectations of $0.79 by 20%, although this was down from EPS of $1.09 a year ago.

Although weaker cross-border travel demand has been a concern that could weaken the outlook for most airlines in correlation with higher tariffs, American Airlines received a boost from strong international and premium cabin demand, especially in the Atlantic markets, where passenger unit revenue rose 5% year over year.

Joining Delta DAL and United UAL Airlines, which reported Q2 results earlier in the month, American Airlines also received a margin boost from loyalty program growth, seeing a 7% jump in Active AAdvantage accounts and a 6% increase in spending on co-branded credit cards.

Furthermore, American Airlines CEO Robert Isom stated the company is well-positioned to navigate volatility due to its loyalty initiatives, modernized fleet, and strengthened balance sheet.

Reinstated but Lowered EPS Guidance

Notably, American Airlines reinstated but lowered its full-year earnings guidance, expecting adjusted fiscal 2025 EPS to range from a loss of $0.20 to a profit of $0.80, with a midpoint of $0.30. This is significantly lower than previous forecast of $1.70 to $2.70 per share, although the top of the guidance fell in range of the current Zacks Consensus of $0.73.

It’s noteworthy that during Q3, American Airlines anticipates an adjusted loss of $0.10-$0.60 per share, citing weak domestic demand in July.

AAL Valuation Comparison

At current levels, American Airlines stock trades at 17.4X forward earnings. While this comes off as a discount to the benchmark S&P 500’s 24.5X, AAL trades above its Zacks Transportation-Airline Industry average of 14.5X, with Delta and United Airlines trading at just 10X and 9X forward earnings, respectively.

In terms of price-to-sales, American Airlines does significantly stand out, with investors paying just $0.15 for every dollar the company makes. In comparison, Delta, United, and the industry average are at $0.50 or more, with the S&P 500 having a forward P/S ratio of 5.4X.

Conclusion & Final Thoughts

As the largest airline in the world in terms of passengers carried and daily flights, it's very tempting to add long-term positions in American Airlines stock at under $15 a share. However, there could still be better buying opportunities ahead, given American Airlines' cautious outlook in regard to reinstating but lowering its EPS guidance.

For now, AAL lands a Zacks Rank #3 (Hold), and patience is certainly needed for those who invest in American Airlines stock.

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This article originally published on Zacks Investment Research (zacks.com).

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