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American Airlines’ stock skyrocketed on Thursday after its earnings report.
Daniel Slim / FP via Getty Images
The battle between Wall Street and retail investors, according to an analyst, ended up at the airport with a “retail hijacking”.
American Airlines
Group inventory (ticker: AAL) rose after the company reported its earnings on Thursday morning. Shares in America rose 20% in early trading, but recently some of these gains increased to 10% higher at around $ 18. American shares were one of the heaviest traded expenses on Thursday, with more than 196 million shares .
The stock closed more than 6% on Wednesday after rising 14% intraday, ahead of its report.
Southwest Airlines
(LUV) and
JetBlue Airways
(JBLU) also rose – about 1% in recent trading – after transport companies both reported fourth-quarter results that predicted consensus earnings.
American does not shoot the lights out with its report, but does manage to lose a little less than Wall Street expected. The carrier reported an adjusted loss of $ 3.86 per share, beating estimates for a loss of $ 4.11 per share. Revenue of $ 4 billion beat estimates for $ 3.9 billion. It lost a net loss of $ 2.3 billion, slightly worse than the forecast for a $ 2.2 billion loss.
These results hardly qualify as an eruption, but American is the heaviest shortened share in the airline, with 25% of the outstanding shares. A short position is when investors bet on a stock by borrowing shares and selling them, with the aim of buying back at a lower price in the future. As a result, American has become an excellent short-term candidate, allowing clumsy investors to cover short positions by buying shares, which puts upward pressure on the stock.
These dynamics especially lead to a mania in some heavily shorted stocks
GameStop
(GME) and
AMC Entertainment Holdings
(AMC). One explanation is that an army of retail investors targeted the stocks, defying clumsy analysts and hedge funds and causing short circuits. According to The Wall Street Journal, American’s shares appeared on Wallstreetbets on Wednesday – a forum where individual investors banded together around shares such as GameStop and AMC.
Analysts have quickly pointed out that US stocks are rising, and these are the basics. Rayanth James, Savanthi Syth, had a clear relationship with his earnings, with short interest rates the only factor currently relevant to equity performance.
American’s outlook for the first quarter showed no successive improvement – similar to the poor outlook projected by
Delta Luglyne
(DAL) and United Airlines Holdings (UAL) last week. Syth’s U.S. route network has more exposure to some strong recreational markets, and it’s progressing with cost-saving initiatives for 2021. But it also has some short-term wind regions, especially exposure to Mexico / Caribbean routes, which may be negatively impacted by new U.S. test requirements for all international travelers.
Citigroupsay
Stephen Trent reiterated a sell rating of the stock, saying the short print could be a “hijacking in the trade”. American has the highest debt burden of any major carrier and has significant exposure to the weak business travel segment, he says, and he does not differentiate itself with superior technology or strategy.
Americans’ ongoing losses, $ 34 billion in net debt and the lack of clarity about discussions seem “not clumsy”, he writes.
But he acknowledged that speculative dynamics are an overwhelming traditional analysis. “It seems difficult to make stock recommendations about what appears to be retail investor sentiment, especially if it is difficult to conclude that this sentiment will not change in a few weeks,” he writes.
Helene Becker of Cowen shared the interpretation and wrote that the American’s shares ‘disrupted’ the fundamentals. Once upwards: American can take the opportunity to issue shares at higher prices by using the proceeds to extract its balance. But it will dilute earnings per share even more, if accepted.
Write to Daren Fonda by [email protected]