American Airlines Q2 preview: Where next for AAL stock?

When will American Airlines release Q2 earnings?

American Airlines is scheduled to release second quarter earnings before US markets open on Thursday July 21.

American Airlines Q2 earnings consensus

Wall Street forecasts American Airlines will report a 76% year-on-year rise in revenue to $13.2 billion and deliver adjusted EPS of $0.73 compared to the $1.69 loss reported last year.

American Airlines Q2 earnings preview

It is set to be a landmark day for American Airlines this week, with the company poised to see revenue climb to its highest level since the start of the pandemic and report its first profit since the Covid-19 crisis began.

In fact, it is set to be the strongest set of quarterly earnings this side of the pandemic for all the major US airlines. Delta Air Lines booked its highest profit since 2019 (and stayed in the black for a second consecutive quarter) when it was first to release second quarter earnings earlier this month, although it did miss expectations. United Airlines is forecast to report its best profit since Covid-19 erupted when it too reports quarterly results this Thursday (July 21), as is Southwest Airlines when it follows on July 28.

American Airlines said it delivered record sales in March, which also marked the first month that revenue returned above 2019 levels, as demand for travel rebounds and people take a well-deserved holiday after being told to stay at home during lockdown. Revenue is set to come in around 12% higher than in the same quarter in 2019 despite the fact capacity was still 8.5% lower compared to pre-pandemic levels – below its original goal.

Meanwhile, fares are expected to have continued to grow at a faster pace than costs during the quarter – but only just. Passenger revenue per available seat mile is forecast to have grown 45% from last year, while the cost of each seat rose 43% largely thanks to higher fuel prices. Excluding fuel, costs are expected to decline 0.7% from last year. Things look more favourable when compared to 2019, with revenue per seat to be 22.5% higher compared to a 12% rise in costs.

The outlook for demand past this summer will remain under the spotlight as fears of a recession grow, although there are hopes the lag in recovery for international and business travel can provide new catalysts going forward. BofA Securities said this week that consumer spending on travel was still running at a healthy pace as people funnel more money on experiences and less on shopping.

Notably, Wall Street currently forecasts that revenue will stay broadly flat quarter-on-quarter at $13.2 billion in the third quarter. Although American Airlines is forecast to remain in the black, costs are expected to rise at a faster pace than revenue and squeeze adjusted EPS in the quarter. Importantly, while its bottom-line has improved this year, it is still expected to remain in the red over 2022 as a whole, according to current consensus numbers.

Liquidity stands at around $15.6 billion and should remain healthy thanks to strong summer demand. American Airlines has made deleveraging its balance sheet a priority going forward with ambitions to cut its debt pile by $15 billion by the end of 2025.

Where next for AAL stock?

Anglo American shares are trending higher ahead of its quarterly results, having gained traction since hitting a 19-month low of $12 in late June.

The stock is testing the 50-day moving average that currently sits at $15 and, once recaptured, it can look to reclaim the 100-day moving average at $16. The 19 brokers that cover American Airlines remain cautious but do see around 17% potential upside with an average target price of $17, roughly in-line with the 200-day moving average that the stock has only briefly managed to surpass over the last seven months.

Notably, the five-day average volume at time has increased 16% from the 10-day average and also sits some 9% above the 100-day average to imply the rally higher is gaining momentum, supported by a rising RSI.

The fact the RSI tested oversold territory upon hitting the $12 low suggests this should be treated as a firm floor going forward, although we could see the stock slip below the $11 mark should it fail to hold.

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