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Why American Airlines Group Stock Jumped 6% -- Then Gave Most of It Back

Rich Smith, The Motley Fool

What happened

Shares of American Airlines Group (NASDAQ: AAL) popped 6.4% in early trading Wednesday before retracting to close the day up less than 1% -- just 0.9%, to be precise. An upgrade assigned to the stock by Deutsche Bank appears to be the primary reason for the move.

So what

A Deutsche Bank analyst upgraded American Airlines stock from "hold" to "buy" on Wednesday, as we're told by our friends at StreetInsider.com. Previously pessimistic about American Airlines' profits for Q4 2018 and full-year 2019 based on rising expenses from fuel cost, the analyst says he's encouraged by the fact that American rivals Delta and United have succeeded in "recapturing" 85% to 100% of the cost of higher fuel prices this past quarter.

The analyst previously predicted that airlines would only be able to hike ticket prices enough to cover about half the higher cost of their fuel. But assuming American is as fortunate as its peers have been in this regard -- and assuming it's able to continue covering higher fuel costs with higher ticket prices in future quarters -- Deutsche now believes American Airlines stock could be worth a lot more, $47 a share in fact.

An American Airlines Boeing 737.

Image source: American Airlines.

Now what

With American Airlines stock closing up just 0.9% at $33.57, Deutsche's new price target implies there's as much as 40% upside left in the stock. That prospect was enough to entice investors to buy into the stock earlier today. As the day wore on, however, investors may have rethought:

American Airlines is supposed to report earnings just one week from now, on Thursday morning, Oct. 25. If the company is doing as well as its rivals have been doing, then waiting one more week to confirm that fact shouldn't change matters much. There will be plenty of time to buy into this success story... once we're certain Deutsche is reading it correctly.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.