Last thursday in the wake of the earnings release and forward guidance by the company, I stated that because of the disappointing pretax margin guidance for the third quarter, that Jamie Baker, the JPMorganchase analyst , who has been the most bullish of the analyst community on AAL, (by most bullish I mean highest earnings estimates and price targets) would likely reduce his earnings estimates for AAL. Late last night , he did as I predicted, dropping his street high third quarter estimate of $2.11 to $1.89, and his fourth quarter estimate from $1.32 to $1.14. He also slightly decreased his 2016 estimates and his price target for the stock, maintaining his overweight rating.
Interestingly , in the same note, he raised estimates and rating for UAL, and estimates for JBLU. He also downgraded rating and estimates for ALK.
On the AAL decreased estimates, Yahoo finance has not yet incorporated his ( and probably some other analyst) estimates , but will do so as it filters through their system.
Prof, so, he is saying the whole years earnings will be $5.75? Sound to me he was the most bullish, so saying he has "downgraded" to a level that is still higher than most, is interesting. At the current price, this is less than 7x. Would you like to comment on that and that no analyst has downgraded AAL. And I think you actually said he would downgrade the stock, not just lower slightly his estimate earnings.
his 2014 full year estimate went from $6.01 to $5.61. It is significant because , as you noted, he has been clearly the biggest bull on the street AAL
And you thought wrong, I did NOT state he would downgrade the rating on the stock, at this time HOWEVER, seeing that he just downgraded ALK, if , for whatever reason, and there are many possible, AAL outlook softens, he would eventually do so.
I think the psychology of when the biggest supporter on the street softens his view, even slightly , it takes some of the appeal of buying the stock, at least at any price, away.
My own view is that while I still see shareprice potential upside for AAL, but as I have noted before, I think it is going to be more moderate and harder to accomplish than before. , ie the easy money on AAL has been made. Now that significant and more reasonable doubt has been introduced, AAL will have to prove for many quarters that it can live up to expectations.
I also believe from decades of experience in this game, that you are making an error in focusing on the P/E so much. Experience teaches that stocks that trade with a low P/E do so for appropriate reasons. One thing you are missing is that the quality of AAL earnings have some factors or questions to take into account. One , they are reporting on a non GAAP basis , which is inflating the earnings. Secondly because of NOL's they are not paying federal corporate income tax. Eventually that will run out, and the market has to figure the sharprice on the longer term earnings model, which will take a hit when the NOL's run out.