Is AAL Stock's Cheap Valuation Reason Enough to Bet on it?

American Airlines AAL shares are one of the cheaper ones in the Zacks Transportation - Airline industry, with a Value Score of A.
AAL stock is trading at a significant discount, with a forward 12-month P/S of 0.13X compared with the industry’s 0.6X. AAL is also cheaper than other airline stocks like Delta Air Lines DAL and United Airlines UAL. Delta Air Lines and United Airlines also have a Value Score of A each.

AAL’s P/S F12M vs. Industry, DAL & UAL

AAL’s cheap valuation is attractive for investors. However, is it worth buying at current prices? Let’s dig deep to find out.

Other Factors Working in AAL’s Favor

Low Fuel Costs: The southward movement of oil prices bodes well for AAL’s bottom-line growth. This is because fuel expenses are a significant input cost for the aviation space. Crude oil is struggling in 2025, with prices sliding to multi-month lows. Tariff concerns, weakening consumer confidence and production increase by OPEC+ have all contributed to this downward pressure. As evidence, expenses on aircraft fuel and taxes decreased 13% to $2.67 billion in the second quarter of 2025. Average fuel price per gallon (including related taxes) decreased to $2.29 from $2.7 a year ago. The oil price-induced cost relief could support margins and lend ticket pricing flexibility to airlines like AAL in this uncertain era.

Upbeat Earnings Surprise History: In its recently released second-quarter 2025 results, AAL continued its streak of beating earnings expectations, demonstrating resilience despite challenging conditions. The airline stock outpaced the Zacks Consensus Estimate for earnings in each of the last four quarters, with an average beat of 50%.

American Airlines Price and EPS Surprise

American Airlines price-eps-surprise | American Airlines Quote

Headwinds That Cannot be Ignored

Sluggish Air- Travel Demand: Despite the above-mentioned positives, AAL stock is not bereft of near-term challenges. Agreed that tariff woes are showing signs of easing, but in the absence of long-term trade deals, we are not out of the uncertain scenario. There are no clear-cut signs of a breakthrough available on the tariff front, particularly with China. The uncertainty may hurt travel demand. Due to the uncertainty, AAL gave an unimpressive outlook for the third quarter, wherein AAL expects a loss per share of 10-60 cents. Sluggish domestic travel demand results in more unsold seats and a decline in fares.

Even though guidance for full-year 2025 has been reinstated, it is lower than the previous view, mainly due to the uncertainty. AAL expects adjusted 2025 EPS to range from a loss of 20 cents to a profit of 80 cents. This is significantly lower than the previous forecast of $1.70 to $2.70 per share

High Debt Load: AAL’s financial metrics indicate that its leverage is elevated and is a massive negative for its shareholders. The long-term debt burden of the company was pinned at $25.3 billion at the end of the second quarter of 2025, which translates into a debt-to-capitalization of 94.9%, which is above the industry’s 56.6%.

Escalated Labor Costs: High labor costs (expenses on salaries and wages were up 10.9% year over year in the second quarter of 2025), mainly due to the deal with pilots inked in 2023, are hurting AAL’s bottom line.  

Unimpressive Price Performance of AAL Stock: Shares of AAL have not had a good run on the bourses so far this year, declining 35.4% against the industry’s 0.1% growth. Delta Air Lines and United Airlines have performed better than American Airlines year to date.

YTD Price Comparison

Unimpressive Earnings Estimate Revisions for AAL: Due to the above-mentioned headwinds, earnings per share estimates for third-quarter 2025, fourth-quarter 2025, full year 2025, and 2026 have moved south over the past sixty days.

Not an Opportune Time to Buy AAL Stock

There is no doubt that the stock is attractively valued. Low fuel costs also bode well for the company’s bottom line. Although signs of trade tensions easing have emerged, until a concrete long-term trade deal is inked, we are not out of the woods as far as this uncertainty is concerned. Uncertainty will continue to weigh on AAL’s fortunes by hurting air travel demand, as exemplified by the bearish outlook. Declining earnings estimates and high debts also do not help matters.

Given the current uncertainty, it is not at all advisable to buy this Zacks Rank #3 (Hold) stock at present. Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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

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