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American Airlines Group (AAL) to Enter Coveted S&P 500 - Analyst Blog

American Airlines Group Inc.AAL , formed following the Dec 2013 merger of AMR (American Airlines' parent group) and US Airways, is set to join the S&P 500 after market close on Mar 20. The carrier will replace healthcare company Allergan AGN which will be acquired by specialty pharmaceutical company Actavis ACT . The news of American Airlines making its way into the much sought-after index impacted the stock positively.

With a portfolio of 500 leading companies that capture approximately 80% coverage of the available market capitalization, the S&P 500 is widely regarded as the best single measure of large cap U.S. equities. The list is periodically modified to do away with stocks that have been acquired by other companies, delisted from the stock exchange or fail to meet the mandatory criteria of the benchmark index. Consequently, other companies that meet the inclusion criteria are added to the list to replace the scrapped stocks.

A company needs to fulfill certain criteria to be included in the S&P 500. Firstly, its market capitalization should be at least $5.3 billion. As of Mar 16, 2015, the market capitalization of American Airlines was $34.99 million. Moreover, at least half the outstanding shares of the firm should be available for public trading.

In addition, the company needs to have sufficient liquidity and a reasonable price. The ratio of annual dollar value traded to float adjusted market capitalization should be 1 or greater. Also, the company should trade at least 250,000 shares in each of the six months leading up to the evaluation date.

To be listed on the S&P 500, a U.S. company needs to possess the following characteristics as well. It should file 10-K annual reports and should not be considered a foreign entity by the SEC. The U.S. portion of fixed assets and revenues must comprise a majority of the total, but need not be above 50%. When there is an inconsistency among these factors, assets establish plurality. Revenues determine plurality in the event of incomplete asset information. The company should follow a corporate governance structure in line with the U.S. practices.

The stock should be primarily listed on the NYSE (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market, the NASDAQ Select Market or the NASDAQ Capital Market. ADRs are not qualified for addition. Furthermore, the trailing four quarters' average earnings surprise should be positive, along with a mandatory earnings beat in the last reported quarter.

Headquartered in Fort Worth, TX, American Airlines duly fulfills all these criteria and has thereby been added to the S&P 500 GICS "Industrials" sector or Airlines Sub-Industry index. We note that as of Feb 27, 2015, the "Information Technology" sector had the highest representation (19.9%) on the S&P 500 index. The Industrials sector came fifth in terms of representation (10.3%) while the Telecommunication Services sector was least represented (2.3%).

As of Feb 27, the mean market capitalization of the 500 constituents was $39.36 billion, while the median market cap was approximately $19.12 billion.

As of Dec 31, 2014, American Airlines Group maintained a fleet of 983 mainline jets in addition to 566 regional aircraft which were operated by its regional airline subsidiaries and third-party regional carriers.

Zacks Rank

American Airlines Group carries a Zacks Rank #3 (Hold). A better-ranked stock in the airline space is JetBlue Airways JBLU . The stock carries a Zacks Rank #1 (Strong Buy).

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AMER AIRLINES (AAL): Free Stock Analysis Report

ACTAVIS PLC (ACT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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