A Look at American Airlines (AAL) Valuation Following New Partnership With Porter Airlines

American Airlines (AAL) shares caught some fresh attention after the company unveiled a codeshare partnership with Porter Airlines. This partnership opens up more travel options between the United States, Canada, and other key regions.

See our latest analysis for American Airlines Group.

The new partnership buzz comes at a time when American Airlines' share price momentum has cooled this year. Despite recent operational news grabbing headlines, investors have seen the 1-year total shareholder return hover just above flat. This suggests the market is still weighing growth potential against ongoing industry risks and mixed quarterly financial trends.

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With shares trading at a discount to analyst price targets but sector headwinds still in view, investors must ask themselves: Is American Airlines undervalued right now, or is the market already pricing in its future gains?

Most Popular Narrative: 9% Overvalued

At $11.58, American Airlines is trading above the narrative's fair value of $10.61, a view reflecting skepticism about the company’s risk-reward profile right now. Can the business overcome industry turbulence and justify its current price tag? Let’s see what stands out.

There's a single reason why American is the least attractive of US legacy carriers (in terms of investing, anyway): its balance sheet. If most airlines and certainly those in the US are loaded up to the hilt with debt, American goes so far as to boast negative equity. Any startup would go belly-up with a balance sheet such as this one. Now, you can survive and even generate decent returns with a precarious capital structure, but of course you are highly sensitive to any shock on the demand side of your business, hitting both revenues and margins. That is where the clouds gather on American.

Read the complete narrative.

Want to know the logic behind this cautious price? The narrative’s calculation depends on eye-catching earnings forecasts and a decisive bet on margin resilience. Find out which crucial assumptions tip the scale and see what sets this story apart from the rest.

Result: Fair Value of $10.61 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, renewed travel demand or successful debt reduction could quickly tilt the outlook and challenge the current skepticism toward American Airlines.

Find out about the key risks to this American Airlines Group narrative.

Another View: Deep Discount in the Numbers?

Interestingly, using our DCF model paints a very different picture for American Airlines. The SWS DCF model estimates fair value at $34.26, which is far above today's share price. This suggests the market may be heavily discounting future cash flows. Could investors be missing a longer-term value story, or are there risks not reflected in the forecasts?

Look into how the SWS DCF model arrives at its fair value.

Build Your Own American Airlines Group Narrative

If you take a different view from the consensus or want to dig through the numbers yourself, shaping your own assessment takes just a few minutes. So why not Do it your way?

A great starting point for your American Airlines Group research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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