On Friday, TD Cowen adjusted its outlook on shares of American Airlines (NASDAQ:AAL), increasing the price target to $17 from the previous $10, while keeping a Hold rating on the stock.
The revision follows the airline's updated guidance and the finalization of a 10-year credit card agreement with Citi, set to commence in 2026. According to InvestingPro data, the stock is currently trading near its 52-week high of $17.80, with a market capitalization of $11.4 billion.
According to the firm, the management of American Airlines expects the remuneration from the deal with Citi to grow at a 10% compound annual growth rate (CAGR). The expected earnings before tax (EBT) benefit is projected to be $1.5 billion versus the year 2024, with remuneration nearing $10 billion around 2030.
The stock has shown remarkable momentum, gaining 19.7% in the past week alone. InvestingPro subscribers have access to 13 additional key insights about American Airlines' financial health and market position.
The analyst at TD Cowen cited the ongoing pricing improvements in the airline industry and the new credit card agreement as the primary reasons for the raised earnings per share (EPS) estimates. The price target increase to $17 is based on a 6x multiple of the airline's projected 2025 enterprise value to EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs).
The firm's decision to maintain a Hold rating suggests that while they acknowledge the positive developments, they advise a cautious approach to the stock at this time. The new price target reflects a more optimistic view of American Airlines' financial prospects over the next few years, particularly with the anticipated benefits of the credit card partnership with Citi.
In other recent news, American Airlines has made several significant developments. The company's earnings per share (EPS) forecast for December has been increased to between $0.55 and $0.75, up from the previous estimate of $0.25 to $0.50. This revised outlook has led Goldman Sachs (NYSE:GS) to maintain a Neutral rating on the airline's shares, despite adjusting its own December quarter EPS estimate for American Airlines to $0.65 from the earlier $0.35.
In addition, American Airlines has announced a significant 10-year co-brand credit card partnership with Citi, set to commence in 2026. This agreement is expected to enhance the airline's annual cash compensation from its co-brand credit card and other partnerships by 10%. Seaport Global Securities upgraded American Airlines from Neutral to Buy, reflecting confidence in the company's revenue potential and an improved risk/reward scenario.
Melius Research has raised the target for American Airlines to $18 based on a positive fourth-quarter update. However, the firm advises caution due to potential costs linked to a new distribution strategy and the company's high net leverage. American Airlines' debt burden stands at $39.2 billion, with a current ratio of 0.57, indicating short-term obligations exceed liquid assets.
Finally, the US Transportation Department is considering a mandate that would require airlines to compensate passengers with at least $200 if they are stranded due to issues within the airline's control. This proposal is part of a broader initiative aimed at enhancing consumer protection for travelers.
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