Citi maintains Buy on American Airlines with $20 target

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On Monday, Citi reaffirmed its Buy rating and $20.00 price target for American Airlines (NASDAQ:). The firm’s assessment highlighted that while American Airlines doesn’t surpass Delta and United in terms of free cash flow (FCF), net financial leverage, or co-branded card earnings, the airline is showing significant improvements. American’s leverage is on a downward trend, and its annual capital expenditures are relatively moderate. Moreover, the company’s free cash flow profile is already better than its average pre-pandemic performance.

Despite these positive developments, American Airlines’ stock continues to trade below its pre-pandemic valuation. Citi suggests that American Airlines has become a better company since then. The airline’s strategy, which has been more focused on domestic regional flying, presents a cautious opportunity, according to Citi. However, in areas such as increased international passenger traffic, loyalty program revenue growth, and potentially improved co-branded card earnings, American’s approach is akin to its industry peers.

Citi’s analysis indicates that with Delta and United poised to perform well in these strategic areas, there is an expectation that American Airlines should experience similar success. The firm’s outlook for American Airlines remains positive, reflecting a sentiment that the airline’s current market valuation does not fully reflect its improved financial and operational metrics compared to its pre-pandemic state.

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