American Airlines (AAL) Valuation in Focus Following STARLUX Partnership and Pacific Expansion

American Airlines Group (AAL) just landed a major deal that could catch the eye of any investor thinking about the airline’s future. The carrier has teamed up with STARLUX Airlines in a partnership that unlocks single-ticket bookings and easier connections between North America and Taipei, just as STARLUX launches its new Taipei-Phoenix route. For travelers, this means an easier way to fly across the Pacific. For American Airlines, it marks a strategic expansion of their international playbook, leveraging Phoenix as a powerful new gateway to Asia.

This news comes as American Airlines’ stock has shown some real momentum. The past three months saw shares rise more than 21%, a sharp rebound compared to its year-to-date decline. Over the last year, the stock has returned 30%, though its longer-term results remain mixed. Recent announcements, including service expansions in Quebec City and new international partnerships, suggest a company slowly but surely strengthening its network reach and competitive positioning in important markets.

With American making a significant international move and the stock rallying, investors may be considering whether this signals the start of a market reappraisal, or if the potential is already priced in. Here’s a closer look at what the valuation reveals.

Most Popular Narrative: 87% Overvalued

The dominant narrative, according to PittTheYounger, challenges the bull case for American Airlines with a strong statement that the stock is meaningfully overvalued in comparison to its fair value estimate.

There is a single reason why American is the least attractive of US legacy carriers, at least from an investment standpoint: its balance sheet. While most airlines, particularly in the US, carry significant debt, American has gone further and now reports negative equity. Any startup with a balance sheet like this would not survive.

Is American ready to soar? The main assumptions behind this perspective center on the company’s financial structure and the impact of a potential downturn in demand. What underlying numbers support the claim of significant overvaluation? PittTheYounger’s analysis explores the interaction between balance sheet concerns and profit margin forecasts. To understand why the fair value estimate is so much lower, the full story is recommended reading.

Result: Fair Value of $7.23 (OVERVALUED)

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

However, unexpected travel demand or stronger cost controls could challenge the overvaluation thesis. This may trigger a reexamination of American’s true potential.

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

Another View: Discounted Cash Flow Tells a Different Story

While most investors are looking at the company’s current price compared to estimated fair value, our DCF model paints a dramatically different picture. This method suggests the market may be overlooking something crucial, but which approach should you trust?

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

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out American Airlines Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own American Airlines Group Narrative

If this perspective doesn’t fit your outlook or you prefer analyzing the numbers on your own terms, building your own American Airlines narrative takes less than three 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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