On Monday, TD (TSX:TD) Cowen raised the stock rating for American Airlines (NASDAQ:AAL) stock from Hold to Buy, with a significant increase in the price target to $25.00 from the previous $17.00. This upgrade aligns with broader market sentiment, as InvestingPro data shows 13 analysts have recently revised their earnings estimates upward.
Currently trading at $16.97, with analyst targets ranging from $12 to $24, the adjustment reflects a more optimistic view of the airline's prospects, with analyst Thomas Fitzgerald citing improvements in the domestic market and potential gains in Latin American routes.
American Airlines has benefited from reduced competition as other carriers like Southwest, JetBlue, Spirit, and Frontier have made cuts and network changes, leading to higher pricing due to decreased supply. With a substantial market capitalization of $11.15 billion and annual revenue of $53.61 billion, American Airlines, being the largest carrier in both domestic and Latin American markets, stands to gain disproportionately as pricing improves in these areas.
The analyst also anticipates a strong performance in long-haul international flights in 2025, bolstered by the introduction of A321XLR aircraft, which are well-suited for transatlantic routes. This fleet expansion is expected to offer American Airlines strategic flexibility and an advantage in serving various markets throughout the year.
Furthermore, American Airlines is expected to recover higher-yielding corporate traffic and expand its premium seating offerings, which should contribute to top-line growth. The company is also predicted to benefit from favorable Revenue per Available Seat Mile (RASM) and yield comparisons throughout most of 2025.
InvestingPro analysis indicates the company's strong financial health, though it operates with a significant debt burden. For deeper insights into American Airlines' financial metrics and growth potential, including exclusive ProTips and comprehensive valuation analysis, investors can access the detailed Pro Research Report available on InvestingPro.
An additional factor contributing to the upgraded outlook is American Airlines' new co-branded credit card deal, which is predicted to support margins into the 2030s. Fitzgerald believes that the financial benefits of this deal have not been fully integrated into current sell-side estimates.
The analyst concluded that consensus estimates might be underestimating the positive impact on American's profit and loss statement for 2025 and beyond. With the anticipated earnings revisions and continued debt reduction, Fitzgerald expects equity owners to witness an increase in their share of the company's enterprise value.
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