American Airlines AAL stock has declined 12.5% over the past month despite strong air travel demand. The decline was primarily due to the loss of business travelers following a faulty sales strategy, the unfortunate mid-air mishap of one of its flights, and concerns about high labor costs. The sell-off was fierce on Jan. 23 when AAL declined nearly 9% in a single day, following the disappointing outlook shared by the company while releasing its fourth-quarter 2024 results.

AAL stock’s double-digit decline over the past month compares unfavorably with its peers, United Airlines UAL and Delta Air Lines DAL, which have been benefiting from favorable pricing and strong winter demand.

One-Month Price Comparison

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Given the significant pullback in AAL’s shares currently, investors might be tempted to snap up the stock. But is this the right time to buy AAL? Let’s find out.

AAL’s Bearish Guidance for the Current Quarter and Year

Last month, American Airlines reported better-than-expected earnings per share and revenues for the fourth quarter of 2024. Despite the outperformance, the stock declined following a disappointing guidance, particularly for first-quarter 2025.

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AAL expects a loss per share of 20-40 cents in the first quarter of 2025. At the time of the earnings release, the Zacks Consensus Estimate was pegged at earnings of 4 cents per share. Despite favorable pricing and upbeat air travel demand, the airline heavyweight's guidance naturally disappointed investors.

AAL has lost business travelers to its competitors due to a faulty sales strategy implemented in 2023. AAL spent much of 2024 correcting the mistake and rebuilding its sales strategy to lure more corporate accounts. The carrier is making slow progress in its effort to regain corporate travel.

Non-fuel unit costs are also expected to be high. Operating costs per available seat miles, excluding net special items and fuel, are expected to be up approximately high single digits in the March quarter, driven by the reduction in year-over-year capacity and the new collective bargaining agreements reached in the second half of 2024.

The guidance for full-year 2025 was also below par. AAL expects 2025 adjusted earnings per share to be in the range of $1.7-$2.7. The midpoint of the guided range was below the Zacks Consensus Estimate at the time of the earnings release. In full-year 2025, non-fuel unit costs are expected to increase in mid-single digits, primarily due to the year-over-year increase in salaries and benefits.

Due to the bearish EPS view for 2025, analysts are seemingly turning pessimistic on the stock and downwardly revising earnings estimates.

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AAL Plane Mishap: A Further Setback

On Jan. 29, an AAL regional jet collided with a U.S. Army helicopter in Washington, DC. The collision with a military helicopter killed all 64 people on board. This was the first major commercial airline crash since 2009. The aircraft went down in the Potomac River, breaking into multiple pieces. 

The flight data and cockpit voice recorders have been recovered following the deadly midair collision. The ill-fated plane was operated by an American Airlines subsidiary. The National Transportation Safety Board is leading the investigation for this deadly crash.

American Airlines is Undervalued

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At its current levels, AAL stock looks highly attractive from a valuation standpoint. With a forward price-to-sales (P/S) ratio of 0.18, AAL trades at a significant discount to industry levels. It is also below the 5-year median reading. AAL has a Value Score of A.

How Should Investors Play AAL Stock Now?

American Airlines’ efforts to reduce its debt levels are impressive. AAL achieved its total debt reduction goal of $15 billion from peak levels in 2024, a year ahead of schedule. AAL’s decision to ink an exclusive credit card partnership with Citigroup C is another positive.

AAL’s impressive valuation picture is an added tailwind. Moreover, with air travel expected to remain upbeat, AAL stock might attract long-term investors.

American Airlines’ decision to ink a 10-year agreement with Citigroup that extends their partnership is a huge positive. The deal will make C the sole issuer of the AAdvantage (AAL’s frequent flyer program) co-branded card in the United States starting in 2026. AAL expects the agreement to result in a substantial increase in cash payments of about 10% annually. On the fourth-quarter conference call, management stated that as a result of the agreement inked in December, AAL’s AAdvantage program will be enhanced. This will strengthen AAL’s travel awards and co-branded credit card program ecosystem. 

AAL’s long-term earnings (three to five years) growth rate is 30%, way ahead of its industry’s 15.8%. Hence, investors who already own the stock may expect AAL's growth prospects to be rewarding over the long term.

However, near-term weakness due to high labor and fuel costs and the slow recovery of corporate travel due to the faulty sales strategy inked in 2023 calls for a cautious stance on the stock for now.

AAL currently has a Zacks Rank #3 (Hold), justifying our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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