American Airlines Stock Dives on Missed Earnings and Cash-Burn Rate

American Airlines Group missed earnings estimates for the first quarter, and the stock is drifting down as investors appear unimpressed with the company’s efforts to conserve cash and cut costs in the face of the coronavirus.

American (ticker: AAL) reported an adjusted loss of $2.65 a share, missing consensus estimates for a loss of $2.33 a share in the first quarter. Revenue came in at $8.5 billion, below estimates of $8.9 billion.

Shares of the airline were down about 4.6%, at $12.05, in recent trading, after initially falling more than 6%.

If there was good news in the report, it was that American’s liquidity appears to have stabilized. The company said it had $6.8 billion of cash and available funds at the end of the first quarter and expects to have $11 billion by the end of June.

The airline is getting $5.8 billion in payroll support from the government and raised $2 billion in capital from other sources. American is also expected to receive government loans of $4.8 billion under a separate aid program, though it may not need to tap the full amount.

One bit of encouraging news is that American’s daily cash burn appears to be falling. The company is burning through an average $70 million in cash a day but is targeting a $50 million burn rate by the end of June.

American also expects to boost revenue from air cargo, retire older aircraft, and slash capital spending, reducing operating expenses and capex by $12 billion this year.

Analysts gave American a mixed report card.

“In the near term, American’s liquidity is fine,” Cowen analyst Helane Becker wrote in a note Thursday. She praised the company’s capacity cuts and measures to restructure its fleet, but added that “there needs to be an additional sense of urgency given the state of demand and the expected slow recovery.”

Becker has an Outperform rating on the stock with a $15 price target.

Citi analyst Stephen Trent maintained his Sell rating and $10 price target. Operational results “looked a little weak,” he wrote in a note. He expects the stock to be range-bound as “a tug of war continues between investors that see the shares bottomed out versus those concerned about weak operational results and high leverage.”

Bernstein analyst David Vernon sounded unimpressed, though he maintained a Buy rating and $27 price target on the stock.

First-quarter results are “largely irrelevant,” he told Barron’s. All that matters are cash burn and liquidity. Ending the quarter with $6 billion in liquidity and a cash burn rate of $70 million a day is “bad combination,” he says, and he expects liquidity to drain as the company issues $14 million a day in ticket refunds.

“While there are going to be opportunities to improve on that burn rate through additional cost cuts and simplifying the fleet through early retirement of older aircraft, it looks like there is still a lot to do on cost at AAL,” he wrote in a report.

Nonetheless, Vernon still sees higher equity value in the stock for investors wiling to take a long view.

“It’s not a comfortable situation,” he says, noting that air travel remains down more than 90% from a year ago. “But I’m a believer the economy will recover slowly and travel will return. I don’t think business will be done over Zoom for eternity.”

Moreover, the government is clearly signaling it won’t let airlines go insolvent. “The important lessons here is that the government will provide support to make sure the airlines don’t fail,” he says. “Then they’ll have an opportunity to rebuild a network in the most lucrative market in the world.”

Write to Daren Fonda at daren.fonda@barrons.com

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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