HPT vs. HCP: Which Stock Should Value Investors Buy Now?
A month has gone by since the last earnings report for American Airlines Group Inc. AAL. Shares have added about 2.8% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is AAL due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First Quarter Earnings
American Airlines' first-quarter 2018 earnings (excluding 36 cents from non-recurring items) of 75 cents per share surpassed the Zacks Consensus Estimate by a penny. Quarterly earnings increased approximately 23% on a year-over-year basis despite higher costs.
Revenues of $10,401 million fell short of the Zacks Consensus Estimate of $10,411.9 million. The top line, however, improved on a year-over-year basis. Strong demand for air travel led to the year over year improvement in the top line.
Total revenue per available seat miles (TRASM: a key measure of unit revenue) improved 3.5% to 15.80 cents in the reported quarter. Consolidated yield improved 1.5%. Passenger revenue per available seat miles (PRASM) improved 3%.
While traffic (measured by revenue passenger miles) was up 3.8%, capacity (measured by average seat miles) was up 2.3%. Consolidated load factor (percentage of seats filled by passengers) increased to 80.4% from 79.2% a year-ago as traffic growth outpaced capacity expansion in the first quarter of 2018.
Total operating expenses climbed 9.8% year over year to approximately $10 billion primarily due to the rise in fuel costs. Expenses pertaining to salaries and benefits were up 5.5%. Consolidated operating costs per available seat miles (CASM: excluding fuel and special items) increased 2.8%.
TRASM is expected to increase in the band of 1.5% to 3.5% in the second quarter of 2018. Pre-tax margin excluding special items is projected in the range of 7.5% to 9.5% in the second quarter. Adjusted earnings per share in 2018 are now expected between $5.00 and $6.00 (previous guidance had hinted at earnings between $5.50 and $6.50). Higher fuel costs led to the view being trimmed. Consolidated jet fuel per gallon is projected in the band of $2.18 to $2.23 for the second quarter.
Consolidated CASM (excluding special items and fuel) is expected to increase 3.5% in the second quarter of 2018. The metric is also anticipated to increase approximately 2% in 2018. The metric is still expected to increase in the band of 1% to 2% in each of 2019 and 2020. Capacity (system) in 2018 is still projected to increase 2.5% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared with five lower.
American Airlines Group Inc. Price and Consensus
American Airlines Group Inc. Price and Consensus | American Airlines Group Inc. Quote
At this time, AAL has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, AAL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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