Evaluating American Airlines (AAL) Valuation as Sector Optimism Rises After Delta’s Strong Quarter

Shares of American Airlines Group (AAL) caught a lift this week after Delta Air Lines posted third-quarter results that exceeded expectations, sending positive signals through the entire airline sector. Investors are paying close attention even as financial headwinds persist.

See our latest analysis for American Airlines Group.

Momentum in American Airlines Group has shifted this week, with a lift in share price as sector optimism returns after Delta’s upbeat results and a fresh codeshare deal with Porter Airlines. Despite the resurgence in sentiment and new partnerships, American’s year-to-date share price return remains deeply negative at -30.94%. This reflects ongoing challenges. Its one-year total shareholder return of -1.10% shows that the longer-term picture, though still pressured, has been somewhat steadier. Investors appear watchful for a real turnaround as the company prepares to report quarterly earnings.

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With Delta’s strong earnings and sector-wide optimism pushing American Airlines shares higher, the key question now is whether this rebound reveals a true bargain, or if the market has already factored in expectations for the company’s turnaround.

Most Popular Narrative: 10.7% Overvalued

According to PittTheYounger’s widely followed narrative, American Airlines Group’s fair value stands at $10.61, which is below its most recent close of $11.74. This view positions the stock as trading slightly above what the narrative considers justified, sparking debate about whether recent optimism is outpacing fundamental improvements.

There is a single reason why American is the least attractive of US legacy carriers, at least in terms of investing, and that is 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.

Read the complete narrative.

The story behind this valuation is not what you might expect. The narrative’s calculations hinge on a controversial growth outlook and one key business shift that could make all the difference. Want to know why the balance sheet is not the only thing driving this fair value? Uncover the real reasons and see which assumptions turn this projection into a must-read.

Result: Fair Value of $10.61 (OVERVALUED)

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

However, shifts in travel demand or a change in credit conditions could quickly challenge these assumptions and change American Airlines' outlook.

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

Another View: Deep Discount According to DCF

While the popular narrative sees American Airlines as overvalued, our DCF model tells a very different story. Using projected cash flows, it estimates the airline's fair value at $46.40, which is far above the current price. Such a sharp gap suggests the market may be overlooking something important. Which approach will prove right?

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 you see things differently or have your own insights to add, building your personal narrative can take just a few minutes. 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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