The Ratings Game: Stop selling American Airlines stock as it remains ‘heavily shorted,’ analyst says


Shares of American Airlines Group Inc. have tumbled enough in the past week and long-time bearish analyst Scott Group at Wolfe Research said it was time to stop selling.

Scott raised his rating on the Texas-based air carrier to peer perform, after being at underperform for at least the past three years. He removed his stock price target, while his prior target of $14 had made him the most bearish of the 22 analysts surveyed by FactSet.

His upgrade comes after the stock AAL, -1.27% tumbled 14.9% over the past six sessions to close Thursday at $14.12, or just a fraction above his prior target. That compares with an 11.6% drop in the U.S. Global Jets exchange-traded fund JETS, -1.43% and a 0.8% loss in the S&P 500 index SPX, -0.23% over the same time.

And despite this recent selloff, short interest, or bearish bets on the stock, remains relatively high.

“[American’s stock] remains heavily shorted with a 10% short interest, but it’s been consistently executing and making/beating estimates in recent quarters while running a fairly clean operation,” Scott wrote in a note to clients.

The company has been profitable the past three quarters, and has beat bottom-line expectations in seven of the past eight quarters.

Short interest, or the number of shares shorted, represents 9.77% of the public float, or shares available for public trading, according to the latest exchange data. That compares with 3.41% for Delta’s stock and 4.39% for United shares.

Some on Wall Street view high short interest as a bullish sign, as those who have made those bets will have buy back the stock if it starts rallying, an action referred to as short covering. The “meme-stock” craze had involved heavily shorted stocks. Read more about how short selling works.

In addition, Scott said that while American Airlines still carries a high debt load, he believes the company will significantly reduce its debt this year given his expectation that free cash flow will exceed $2 billion in 2023.

And one reason for his previous bearish stance was that American’s margins had previously “badly and consistently” lagged that of rival Delta Air Lines Inc. DAL, -2.14%, and also “consistently lagged” that of United Airlines Holdings Inc. UAL, -0.78%.

“But in recent quarters, the margin gap vs. [Delta] has clearly narrowed, while it remains choppy relative to [United],” Scott wrote in a note to clients.

American Airlines stock, which slipped 0.1% in Friday’s premarket, has rallied 10.2% over the past three months through Thursday, while the Jets ETF has tacked on 2.4% and the S&P 500 has gained 2.8%.

This article was originally published by Read the original article here.

Previous articleU.S. industrial output flat as manufacturing-sector struggles continue
Next article: Insurance sector also taking a beating as bank stocks keep selling off


Please enter your comment!
Please enter your name here