The last major network carrier to go through a merger, American Airlines Group Inc. (NASDAQ: AAL), the holding company of American Airlines, Inc. have seen worst of the times lately. Unlike its peers, United Continental Holdings, Inc. (NASDAQ: UAL) and Delta Air Lines Inc. (NYSE: DAL), AAL’s share price has declined during the year. The number two US carrier in terms of market share, AAL, currently trading at a significant discount to the average forward PE of its peers, is troubled by poor margins and slow revenue growth.
The company’s top-line growth will slow even more as capacity constraints mount following the suspension of the Boeing Company (NYSE: BA)-manufactured 737 Max aircraft. Despite revenue and cost benefits of USD1.3 bn projected for 2019E, AAL’s stock price only yields a modest upside, even after applying the most favorable forward PE. However, the company is steaming ahead with its revenue initiatives at its most profitable hubs, while softening fuel prices and fleet simplification drive are expected to bring in better profitability. If those catalysts could moderate the pressure on EPS growth, the upside potential of the stock would remain even through the Max impact.
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