American Airlines AAL is set to release its first-quarter 2025 results on April 24, before the market opens.

The Zacks Consensus Estimate for first-quarter 2025 loss is currently pegged at 65 cents, wider than the loss of 23 cents 60 days ago. Additionally, the consensus mark implies a 91.2% southward movement from the year-ago actual. The Zacks Consensus Estimate for first-quarter 2025 revenues is pegged at $12.52 billion, indicating a 0.4% downside from the year-ago actual.

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AAL has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed the mark in the remaining quarter, the average beat being 37.1%.

Q1 Earnings Whispers for AAL

Our proven model does not predict a beat on the bottom line front for AAL this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat, which is not the case here.

The company's Earnings ESP is -6.90%. This is because the Most Accurate Estimate is currently pegged at a loss of 69 cents per share, whereas the Zacks Consensus Estimate hints at a loss of 65 cents. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

AAL currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Given this backdrop, let us examine the factors that might have influenced United Airlines’ performance in the to-be-reported quarter.

We expect tariff-induced economic uncertainties and the resultant reduction in consumer and corporate confidence to have caused a slowdown in domestic air travel demand. However, with the demand for long-haul travel remaining buoyant, international passenger revenues are likely to have been impressive. International passenger revenues are likely to increase 3.3% year over year, per our model.

Labor costs are also likely to have been high, hurting bottom-line performance in the March quarter. We expect salaries and related costs to increase 11.1% in the to-be-reported quarter from the first quarter of 2024 actuals.

AAL Price Performance & Stock Valuation

Due to the slowdown in domestic air travel demand, airline stocks have performed dismally in the January-March period. American Airlines and other key players in the Zacks Transportation - Airline industry, such as Delta Air Lines DAL and United Airlines UAL, declined in double digits in the three-month period. Shares of American Airlines, Delta Air Lines and United Airlines plunged 39.5%, 28% and 28.9%, respectively.

Q1 Price Comparison

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From a valuation perspective, American Airlines is trading cheaper than the industry. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.11X, lower than the industry average of 0.51X. The company has a Value Score of B.

Fellow airline operators, Delta Air Lines and United Airlines, are more expensive, even though lower than the industrial reading. While United Airlines is trading at a forward sales multiple of 0.36X, Delta Air Lines trades at 0.42X.

AAL’s P/S F12M Vs. Industry, DAL & UAL
 

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Investment Thesis for AAL

Even though air travel demand has improved from the pandemic low, the recent slowdown in the same, particularly on the domestic front, is a concern. The tariff-induced economic uncertainty is unlikely to fade away soon and is likely to weigh further on passenger revenues. 

High labor costs are a concern and are likely to have hurt the bottom line. However, American Airlines’ move to renegotiatesales contracts is helping the company win back corporate clients. Last year, the airline had cut perks and discounts related to its contracts with corporate travel agencies and clients in a bid to improve margins. But the strategy backfired, with an exodus of corporate clients, ultimately leading to Vasu Raja, who spearheaded the disastrous strategy, stepping down. In a bid to win back corporate clients, AAL renegotiated contracts with travel agencies. 

AAL is Best Avoided Now

Despite low fuel costs, AAL is likely to have recorded an unimpressive first-quarter performance due to low passenger revenues, mainly on the domestic front.

Given this backdrop, we can safely conclude that investors should refrain from rushing to buy AAL stock ahead of its earnings release on April 24. Until there is more clarity, investors should avoid American Airlines stock and wait for a more stable setup.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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