American Airlines (NASDAQ:AAL) stock has had a rough ride in the last couple of years but the company is starting to show signs of life and investor momentum is picking up.

The pre-pandemic stock price was ~$60 but then hit a low of $9 in March 2020 during the COVID first wave, as international travel shut down. We are now seeing an uptrend with the current price reaching $21, with a market capitalisation of $14 billion. Here are the key themes, which we believe are bullish for AA and make their stock a prime recovery trade.

Domestic and International pick up

AA, the world’s largest airline by total number of revenue-paying passengers, has an outlook that is increasingly positive, as vaccination rates continue to grow and more consumers are becoming comfortable to resume short and long-distance travelling.
The latest data from the US Department of Transportation (as of June) counted 67 million passengers on US airlines for domestic and international travel. This is a significant increase from the low figure of 3 million in April 2020, and the latest figure is in-line with the February 2020 data before the pandemic hit the US airlines.  

AA is also forecasting greater domestic demand for Thanksgiving and Christmas travel, whilst the international side has been boosted by Translatlantic routes such as the UK – US travel ban being lifted recently.

Management transactions

So far in 2021, AA executive management or “Insiders” were net buyers of their company stock for a total of ~1.2M shares. Insider buying generally shows that the management team is confident in their company’s future and acts as a bullish signal to the market. This is a positive sign for the view that AA stock is undervalued at the current share price and that positive upside can be expected as the company continues to recover consumer demand.

Earnings

2021 Q2 Revenues hit $7.5 billion, up a huge 360% year-on-year, and 87% quarter-on-quarter, clearly showing the impact of eager flyers returning to normal service. Preliminary air traffic data for Q3 is showing further improvements, which in turn should feed through to AA’s Q3 earnings, due for release at the end of October.

Overall, there are still risks to the share price due to the intense competition within the Airline industry, as well as the slow return of business travel, but the industry is showing enough positive signs for a dominant player such as AA to outperform the market.

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