With a notable daily gain of 5.78% and a slight three-month loss of -1.78%, American Airlines Group Inc (AAL, Financial) presents an interesting case for investors. The company's Earnings Per Share (EPS) stands at $0.60, suggesting a modest financial footing. But the pressing question remains: is American Airlines Group modestly undervalued? This analysis aims to explore this query by delving into the company's valuation metrics.
Company Overview
American Airlines Group Inc (AAL, Financial) is recognized as the world's largest airline by several measures, including aircraft count, capacity, and scheduled revenue passenger miles. With major hubs across the United States, it commands over 30% of the US airline revenue from flights connecting Latin America to the U.S. Following a significant fleet renewal, American Airlines now boasts the youngest fleet among U.S. legacy carriers. A comparison between its current stock price of $14.65 and the GF Value, which estimates its fair value at $18.58, suggests that the stock might be undervalued.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. This valuation is based on historical trading multiples like PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, adjusted by an internal factor reflecting past returns and growth, and tempered by estimates of future business performance. Currently, the GF Value suggests that American Airlines Group's stock is modestly undervalued, indicating potential for higher future returns relative to its current market price.
Financial Strength and Risks
Investing in a company requires a thorough check of its financial health. American Airlines Group's financial strength is rated 4 out of 10, which is relatively weak. The company's cash-to-debt ratio of 0.21 is lower than 70.6% of its peers in the Transportation industry. This metric underlines a higher risk of financial distress.
Profitability and Growth Prospects
Despite its financial challenges, American Airlines has maintained profitability over the years. With a revenue of $53.20 billion and an operating margin of 6.83%, its profitability is deemed fair. The company's profitability is ranked 6 out of 10. In terms of growth, American Airlines has seen a 27% average annual revenue increase over the past three years, outperforming 83.28% of its industry counterparts.
Investment Considerations: ROIC vs. WACC
A critical aspect of assessing a company's profitability is comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). American Airlines' ROIC stands at 3.98, below its WACC of 5.24, indicating it may not be generating sufficient returns on its investments.
Conclusion
In conclusion, American Airlines Group (AAL, Financial) appears modestly undervalued according to GuruFocus' comprehensive analysis. However, potential investors should consider the company's poor financial strength and its ability to generate returns above its capital costs. For a deeper dive into American Airlines Group's financials, visit the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
