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At least one airline is taking advantage of the short-pressure mania and plans to use the increased share price to issue more shares.
American Airlines Group
(ticker: AAL) said in a submission of securities on Friday that they intend to raise $ 1.1 billion in new share issue. The shipping company’s share rose this week and rose more than 15% as the company released its earnings on Thursday.
American is the heaviest short-circuit in the airline, with about 25% of the outstanding shares. It seems to have gotten a short while, a dynamic where prices rise as traders who are short (against a stock bet by borrowing and then selling shares) scramble to cover their losses by buying shares and thus price gains to awaken.
At recent prices around $ 17.40, US stocks have been trading at the highest levels since June last year. It has risen by about 11% this year, but has fallen by more than 35% over the past 52 weeks.
American has issued 68.5 million shares at an average price of $ 12.87 since October last year. The issuance of another 64 million shares at an average price of $ 17 will yield $ 1.1 billion, diluting the outstanding shares by about 10%.
That Americans have to raise so much capital is a sign that he expects a long setback to profitability. The carrier burned $ 30 million a day in the fourth quarter, amounting to nearly $ 2.8 billion over the course of the three months. This is unlikely to improve much in the short term. The airline said this week that it expects year-on-year sales to decline by 60% to 65% in the first quarter, similar to revenue from the fourth quarter.
“Stubborn cases of Covid-19 and stricter travel restrictions have continued to limit demand,” the airline said in a call. Travel trends may actually get a little worse in the short term, as countries reintroduce travel ban rules due to new variants of the coronavirus.
Wall Street expects the company to break even in 2022 and start reporting significant earnings in 2023. It is forecast at $ 1.98 per share.
Yet the stock is now trading well above analysts’ target. Indeed, the average target on the street is around $ 12 per share.
Citigroupsay
Stephen Trent maintained a sell-off of the stock this week with a target of $ 15. Raymond James’ Savanthi Syth repeated her underperformance rating, although she did not set a target.
UBS analyst Myles Walton sold the stock with a target of $ 10. He lowered his revenue estimates for 2021 and raised his forecast for operating losses to $ 5.7 billion from $ 4.5 billion this year.
“The Reddit rally that is taking over some stocks in the market has come to AAL shortly and we would guess that if it returns, the company could find a particularly valuable window to recapitalize,” he wrote in a note Friday morning.
JP Morgan’s Jamie Baker withdrew its price target on Thursday, although he estimates the stock is worth less than $ 5 a share, based in part on a seven-fold multiple of a 2022 earnings of $ 1.33 per share.
This is usually not a good sign for a stock if analysts withdraw their price targets. The issuance of more equity will help America get through another difficult year, but it will do no favors to investors who value the stock on traditional benchmarks, such as earnings per share. If the Reddit rally cools down, so can the stock.
Write to Daren Fonda at [email protected]