Air carrier should take advantage of 'de-risking' by short sellers to raise equity
Shares of American Airlines Group Inc. soared toward an 11-month high Thursday after the air carrier reported better-than-expected quarterly results, but Cowen analyst Helane Becker warned that prices were "dislocating from fundaments."
The stock (AAL) shot up 43.4% in premarket trading, putting them on track to open at the highest price seen during regular-session hours since Feb. 25. It was also headed for a record one-day gain, as the previous record was the 41.1% rally on June 4 ().
Trading volume spiked to 64.2 million shares less than an hour before the open, which is already more than the full-day average over the past 30 days of about 53.7 million shares.
"We believe the move is due to the de-risking going on in the market and American remains one of the most consensus short airlines in our coverage (25% short interest as of 1/15/21)," Becker wrote in a note to clients. "
Becker is referring to the trading dynamic that appears to have contributed to a short squeeze in stocks with a high number of short interest, or bets that prices will fall (GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC)), such as
Don't miss: It isn't just GameStop: Here are some of the other heavily shorted stocks shooting higher ().
American reported earlier that it swung to a fourth-quarter net loss () of $2.18 billion, or $3.81 a share, from net income of $414 million, or 95 cents a share, in the year-ago period. Excluding nonrecurring items, the adjusted loss per share was $3.86, beating the FactSet loss consensus of $4.11.
Revenue fell 64% to $4.03 billion, but beat the FactSet consensus of $3.88 billion. Load factor fell to 63.4% from 84.7%, but topped expectations of 62.9%.
"As we look to the year ahead, 2021 will be a year of recovery," said Chief Executive Doug Parker. "While we don't know exactly when passenger demand will return, as vaccine distribution takes hold and travel restrictions are lifted, we will be ready."
Cowen's Becker said she didn't believe the stock's rally was fundamentally driven, as American's outlook -- "sequentially flat to slight worse" -- is similar to its peers that have already reported. (Read more about JetBlue Airways Corp ( ). (JBLU) and Southwest Airlines Co ( ). (LUV) results, also reported on Thursday.)
"It's hard to say when the market will look at the company's fundamentals, but we believe American could take this opportunity to de-lever the balance sheet with an equity offering," Becker wrote.
American's stock has run up 51.2% over the past three months through Wednesday, but has tumbled 38.4% over the past 12 months. In comparison, the S&P 500 index has gained 14.7% over the past three months and rallied 14.5% over the past year.
-Tomi Kilgore; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
January 28, 2021 08:50 ET (13:50 GMT)
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