Exploring American Airlines (AAL) Valuation Following Successful Resolution of Airbus A320 Software Glitch

American Airlines (AAL) recently resolved a software glitch that affected its Airbus A320 fleet. The company completed updates with little impact on flight schedules, which helped ease concerns about reliability and ongoing operations.

See our latest analysis for American Airlines Group.

Resolving the Airbus A320 software glitch brought a sigh of relief just as American Airlines prepares for high-profile industry conferences. However, investor sentiment remains mixed. Despite a 6.3% gain in the 30-day share price return, its one-year total shareholder return stands at -3.5%. This shows that momentum is recovering, but the stock is still working to regain longer-term ground.

If you’re interested in how legacy carriers stack up, now’s a great time to see the full list of sector peers in our See the full list for free..

With American Airlines shares still trading at a substantial discount to intrinsic value, but recent gains already reflecting better news, investors now face a classic dilemma: Is this a genuine buying opportunity, or is the market simply pricing in anticipated recovery?

Most Popular Narrative: 31.6% Overvalued

Compared to American Airlines' last close at $13.96, the most followed narrative suggests a fair value that is materially lower. This highlights the contrast with the recent share momentum and prompts a closer look at why some investors remain unconvinced despite operational progress.

There is a single reason why American is the least attractive of US legacy carriers (in terms of investing, anyway): its balance sheet. While most airlines, and certainly those in the US, have significant debt, American's situation is more severe with negative equity. Any startup with a balance sheet like this one would likely struggle to survive.

Read the complete narrative.

Curious about the assumptions that drive such a skeptical view? What would it take for a turnaround to be reflected in the numbers? The tension between high growth potential and a precarious capital structure shapes this story, and the ambitious profit forecasts supporting the fair value estimate may challenge conventional thinking about airline valuations.

Result: Fair Value of $10.61 (OVERVALUED)

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

However, easier refinancing or successful premium cabin strategies could quickly challenge the prevailing view that American’s recovery remains out of reach for now.

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

Another View: Discounted Cash Flow Perspective

While narrative consensus points to American Airlines being overvalued based on investor sentiment, our SWS DCF model presents a very different story. According to this approach, shares currently trade at a large 40% discount to the model’s fair value. Is the market too pessimistic, or is the model overlooking real risks?

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 930 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 have a different perspective or want to explore the numbers on your own, you can create a custom narrative in 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 2 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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