Despite the positive news, the analyst expressed caution regarding the potential costs linked to the new distribution strategy, which could offset the gains from revenue recapture.
This concern is set against a backdrop where several airlines have demonstrated substantial improvements in leverage, whereas American Airlines (NASDAQ:AAL)' net leverage remains high, at over four times. InvestingPro data reveals a significant debt burden with total debt of $39.2 billion and a concerning current ratio of 0.57, indicating short-term obligations exceed liquid assets.
The new price target of $18 is based on a valuation multiple of 5.5 times the airline's projected 2026 enterprise value to EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs). This multiple represents the analyst's method of valuing the airline's financial prospects and overall health.
The Hold rating aligns with the broader analyst consensus, with targets ranging from $10 to $20 per share. The stock currently trades at a P/E ratio of 41.29, suggesting a premium valuation compared to industry peers. The Hold rating suggests that Melius Research advises investors to maintain their current position in American Airlines shares at this time.
The analyst from Melius Research highlighted the key drivers behind the revised price target, citing the recent fourth-quarter update and the renegotiated credit card agreement with Citi as pivotal factors.
The analyst noted that with these developments now public, the focus would likely shift to the potential benefits that may arise from American Airlines' change in distribution strategy. With a market capitalization of $11.36 billion and trailing twelve-month revenue of $53.61 billion, American Airlines maintains its position as a prominent player in the passenger airlines industry.
Despite the positive news, the analyst expressed caution regarding the potential costs linked to the new distribution strategy, which could offset the gains from revenue recapture. This concern is set against a backdrop where several airlines have demonstrated substantial improvements in leverage, whereas American Airlines' net leverage remains high, at over four times.
The new price target of $18 is based on a valuation multiple of 5.5 times the airline's projected 2026 enterprise value to EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs). This multiple represents the analyst's method of valuing the airline's financial prospects and overall health. The Hold rating suggests that Melius Research advises investors to maintain their current position in American Airlines shares at this time.
In other recent news, American Airlines has been the subject of several significant developments. The company has updated its earnings per share (EPS) forecast for December, now expecting $0.55 to $0.75, an increase from the previous estimate of $0.25 to $0.50. This has resulted in Goldman Sachs (NYSE:GS) maintaining a Neutral rating on the airline's shares, despite the firm adjusting its own December quarter EPS estimate for American Airlines to $0.65 from the earlier $0.35.
American Airlines has also announced a significant new 10-year co-brand credit card partnership with Citi, set to commence in 2026. This agreement is expected to boost the airline's annual cash compensation from its co-brand credit card and other partnerships by 10%.
In addition, American Airlines received an upgrade from Seaport Global Securities from Neutral to Buy, reflecting confidence in the company's revenue potential and an improved risk/reward scenario.
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