American Airlines Stock Up 4% Today – Time to Buy AAL Stock?

American Airlines stock is up nearly 4% today in pre-market stock trading action following news that the company’s Chief Executive will be stepping down next year and after some early reports on the omicron variant that have indicated that it might not be as dangerous as initially thought.

According to a press release published by the firm today, Doug Parker – the airline’s current CEO – will be retiring on March 2022 and will be succeeded by Robert Isom – the airline’s President.

Parker has been at the helm of American for more than 8 years and guided the company through its turnaround after it emerged from Chapter 11 bankruptcy.

Isom, on the other hand, has served as President of American since 2016 and amasses over 30 years of experience in the industry.

“Robert is an excellent team builder who has worked to bring people together throughout his career. He is the right leader to carry American forward into its next period of growth”, stated the firm’s lead independent director, John Cahill.

The market seems to be reacting positively to the news although some of this positive performance could also be attributed to early reports from the US’s Chief Medical Advisor, Anthony Faucci, who told CNN yesterday that early data about omicron was “a bit encouraging” and that it didn’t seem to display a “great degree of severity”.

However, the expert said it was still too early to “make any determinations” as more data needs to be analyzed before making further conclusions.

Overall, the combination of the two news seem to be prompting today’s pre-market uptick. Can it be enough to reverse the downtrend that American Airlines stock has experienced in the past few days?

In this article, I’ll be assessing the price action and fundamentals of this airline stock to outline plausible scenarios for the future.

67% of all retail investor accounts lose money when trading CFDs with this provider.

American Airlines Stock – Technical Analysis

In my latest article about American Airlines, I highlighted that a break below the $20 level would justify a short-term bearish outlook on this airline stock as the price would lose a crucial horizontal support.

News about the omicron variant were responsible for this decline on 26 November, when the price dipped nearly 9% in a single day as market participants demonstrated concerns about the possibility of vaccines being less effective against this new strain.

However, the earliest reports about omicron have been quite positive and the market appears to be shifting its viewpoint about the impact that this variant could have on the progress of the pandemic.

In this regard, JP Morgan recently stated that omicron could turn out to be a positive catalyst in case the variant’s transmissibility and deadliness is weaker than the previous strains as that would indicate that the virus is losing strength to the point that it is considered something like the seasonal flu.

It appears that markets have embraced this possibility as virus-sensitive stocks such as American Airlines bounced quickly on the days that followed the 26 November decline. Right now, momentum indicators remain heavily depressed and the stock is still trading below both its short-term and long-term moving averages.

Considering the current technical setup, it is still too early to tell if AAL stock will recoup some of its lost territory as the $19 area has turned to resistance. Failing to overcome this threshold could lead to further declines and the downside risk would be sizable if that happens as the next horizontal support would be found at $15 per share.

American Airlines Stock – Fundamental Analysis

The market’s positive reaction to today’s leadership change indicates that there are no worries about the impact that this transition will have on the firm’s financial performance down the road.

Other than that, American Airline seems on track to recover some of the territory it lost last year as a result of the pandemic and analysts were surprised by the lower than expected loss the firm reported back in November as part of its Q3 2021 earnings release.

Analysts are still expecting that 2022 will be the year on which sales climb back to pre-pandemic levels even though profitability will still be severely affected until the end of 2023 at least.

Based on the consensus estimate for American’s earnings per share of $2.73 for that year, the company is currently trading at only 6.6 times that figure.

Meanwhile, its financial position remains robust as the firm has over $14 billion in cash to cover any short-term disruptions in its operations and may decide to either pay back a portion of its outstanding debt with those funds once the virus crisis is over or buy back shares at this overly depressed price.

In any case, for long-term investors, this airline stock could be one of the best opportunities to play the post-pandemic scenario amid its low trading multiples.

That said, the risk of the appearance of a variant that defies the current perception that vaccines are the end game of the pandemic could still derail the recovery of virus-sensitive stocks and, in that scenario, investors will stand to suffer some severe losses if they decide to take a long position in AAL stock.

Buy AAL Stock at eToro with 0% Commission Now!