AAL Stock Forecast: The perspective of Airline Company to gain altitude after the turbulence zone

Sergey Okun  This AAL Stock Forecast article was written by Sergey Okun – Financial Analyst intern I Know First.


  • Since November 2020, the company’s stock has grown by 113%
  • Expected EPS growth by 158% in 2021
  • DCF support over 9% upside for AAL stock for the coming year
(Source: commons.wikimedia.org)


American Airlines Group Inc. (AAG), a Delaware corporation, is a holding company, and its principal, wholly-owned subsidiaries are American Airlines, Inc. (American), Envoy Aviation Group Inc., PSA Airlines, Inc., and Piedmont Airlines, Inc. AAG was formed in 1982 under the name AMR Corporation as the parent company of American, which was founded in 1934. The company primarily operates in two segments: Mainline and Regional affiliates. Also, through its cargo unit, the company offers a broad range of freight and mail services across the globe. AAG is a member of the Oneworld Alliance. In 2020, the company reported operating revenue of $17.33 billion with a decrease of 62%.  The company common stock is listed on The Nasdaq Global Select Market under the trading symbol “AAL”, the last current price on April 1st, 2021 is $23.86.

AAL Stock Forecast: The Zone of High Turbulence

(Source: snappygoat.com)

The COVID-19 outbreak and further the measures governments and private organizations worldwide have implemented in an attempt to contain the spread of this pandemic has had a dramatic effect on the airline business. These measures have included travel restrictions, testing regimes, “stay at home” and quarantine orders, limitations on public gatherings to cancellation of public events, and many others that have resulted in a precipitous decline in demand for both domestic and international business and leisure travel. According to IATA, in December 2020 industry-wide revenue passenger kilometers (RPKs) fell by 69.7% year-on-year.  

(Figure 1 – Air passenger volumes and changes in domestic and international RPKs)

Approximately 95 million passengers boarded American Airlines flights in 2020, a decrease from approximately 215 million passengers in 2019. American Airlines had net losses of $8885 million with a net margin of -51% in 2020. Moody’s American Airlines credit rating is Non-investment (Ba3).

(Figure 2 – American Airlines revenue by types and regions)

The company was approved to the payroll support programs (PSP1 and PSP2) established under the Coronavirus Aid, Relief, and Economic Security Act. According to PSP1, the company received $6.0 billion of financial assistance in 2020, and through PSP2 the company has to received financial assistance in the amount of $3.0 billion in 2021. However, in connection with the financial assistance American Airlines has received under PSP1 and PSP2 the company has been prohibited to repurchase AAL’s stock and the dividend payment through at least March 31, 2022. On March 24th the company raised $10 billion to repay the Treasury loan which had additional restrictions for the stock repurchase and dividend payment.

American Airlines has the lowest P/S ratio compared to competitors. According to the average and the median value of P/S of comparable companies AAL stock should get a price of $49.38 or $51.90 respectively (the current price is $23.86).

(Figure – 3 Comparison of airline companies)

At the same time, the current AAL’s P/S ratio is higher than the average quarter P/S ratio of 0.31 that can underline overvalue of the stock or the perspective of future growth.

(Figure – 4 The dynamic of AAL’s P/S ratio)

AAL Stock Forecast: Is There an Exit From the Death Loop?

(Source: picryl.com)

According to J.P. Morgan Industrial Conference, AAG flew a larger schedule and more customers than peers.

(Figure 5 – Comparison AAG with perrs by PRASM )

American Airlines has made the next actions as a reaction to the negative economical environment:

  • Removed approximately $17 billion of costs. The total number of operated aircraft decreased by 9.6%. AAG has retired certain mainline aircraft earlier than planned, which will allow being more efficient by reducing the number of sub-fleets. Also, AAG has reached an agreement with Boeing to secure rights to defer deliveries of 18 Boeing 737 MAX aircraft
  • Paused non-contractual pay rate increases, reduced executive and board of directors’ compensation, implemented voluntary leave and early retirement programs, and decreased the management and support staff team, including officers, by approximately 30%. In 2021 AAG plans to reduce the permanent cost by $1.3 billion ($500 million in management reductions; $700 million in labor productivity enhancements; $100 million in other identified permanent cost reduction)
  • Reduced daily cash burn from $100 million in April to $30 million in 4Q 2020
  • Expanded cargo service and launched the first cargo-only flights since 1984 to transport critical goods, including the COVID-19 vaccine, between the U.S. and Europe, Asia, and Latin America. These cargo-only flights have moved more than 167 million pounds of goods
  • Announced business relationship with Alaska Airlines and JetBlue that will expand existing codeshare relationships and will provide for reciprocal loyalty program benefits

The duration and severity of the COVID-19 pandemic remain uncertain about future demand that has a determining effect on AAL’s stock. According to Yahoo Finance, American Airlines’ management stated that bookings for the domestic markets and short-haul international flights recently improved. The seven-day moving average as of Mar 26 regarding the net bookings at the current American Airlines was roughly 90% of the level recorded in 2019. Moreover, the domestic load factor (% of seats filled by passengers) was nearly 80% in the period. According to Businesswire, the global passenger air transport market is expected to grow at a CAGR of 6% until 2025.

DCF Estimates $26 AAL Stock Forecast

The DCF analysis shows that AAL’s target stock price should be around $26. This expected share price makes some 9% upside from the price on April 1st. The below forecast is based on average data from previous years, the direction of the company’s policy, and macroeconomic expectations.

(Figure 6 – DCF Model of AAL’s stock)

I have made the next assumptions and estimations for DCF:

  • revenue’s CAGR is 6% for the period 2023-2025, revenue is $27 457 mln and $39 074 mln for 2021 and 2022 respectively, which was estimated by information about the current situation with net booking ticket to take into account information about the dynamic of the company passenger load factor in 2018-2020 and the number of the company aircraft
  • the effective tax rate is 25%
  • the market Beta is 2.1, the coefficient of regression (Beta) was calculated by five years monthly logarithm return with the 95% confidence interval ranging from 1.48 to 2.70
  • the risk-free rate and risk premium are equal to 1.89% and 5.6%, respectively
  • WACC is 6.20%, the Market Capitalization on April 1st is used for estimation of the capital structure

COVID-19 had a structural impact on the market risk profile between financial assets, which can have a positive or negative effect on WACC.

(Figure 7 –  The Dynamic of Market Beta with the Frame of 5 Years)

The high beta value means that an investor asks for more return from investments in AAL that has a reflection on the cost of equity and WACC. It is reasonable to expect that in the future when the story with COVID-19 will be over, the beta coefficient will decrease that will drop WACC, having a positive effect on the company value. I have made a sensitivity analysis of AAL stock based on WACC and g. Values of WACC 5.28% and 7.13% that correspond with values of Beta 1.48 and 2.70 respectively (consistent with 95% of the confidence interval).

(Figure 8 – Sensitivity Analysis of AAL’s stock)

Such numbers in the sensitivity analysis underline the investment risk of the stock that corresponds with the significant level of uncertainty in the global economy for the cause of COVID-19.

Is DCF Consistent With the Current Market Trend?

As we can see in the chart, currently AAL’s stock price is on the uptrend and it is higher than all three moving averages (the green line is MA-50; the yellow line is MA-100 and the red line is MA-200). I suppose we will have some correction soon because the price has been reaching the resistance line and the top line of Bollinger with taking into account the current low level of volume. However, there is not a signal now that after a potential correction tendency will change from an uptrend to a downtrend.

The Yahoo Finance coverage for the company is performed by 18 analysts, with half of whom took buy position on the stock. The analysts’ community puts the average target price for the stock at $17.14 while it is traded at $23.86.


I take a buy-side on AAL stock because the stock holds a positive DCF forecast resulting in a $26 target price, i.e. around 9% upside potential. American Airlines is one of the leading international companies that currently decreasing costs and looking for reserves to improve operational efficiency. Today, a situation with the pandemic remains as a key component that determines future airline demand and consequently the stock price.


It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the AAL stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with AAL Stock Forecast

I Know First has been bullish on the AAL stock forecast in the past. On February 28th, 2021 the I Know First algorithm issued a forecast for AAL stock price and recommended AAL as one of the best consumer stocks to buy. The AI-driven AAL stock prediction was successful on a 1-month time horizon resulting in more than 13.94%.

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Please note-for trading decisions use the most recent forecast.