American Airlines (NASDAQ: AAL) announced its fourth quarter 2014 earnings report on Tuesday January 27th, revealing a huge boost thanks to cheaper fuel. The airline company said it could save as much as $5 billion in fuel costs in 2015 as a result from the drop in oil costs.
Chief Executive Doug Parker stated that American Airlines will not alter its strategy due to significantly lower oil prices, noting, “We’re going to continue to run American as if oil was $100 a barrel.”
Shareholders are expected to get cash back as the company spent $1 billion buying back shares in the second half of 2014, which makes remaining shares more valuable. American Airlines announced in its Q4 earnings report that it plans to buy back an additional $2 billion in stock with the cash it will save from oil costs and pay another quarterly dividend of 10 cents per share.
Highlights from the report include adjusted earnings of $1.52 per share and $10.2 billion in revenue, marking a 2.1% increase year-over-year. The airline also reported a record GAAP net profit of $597 million, compared to a GAAP net loss of $2.0 billion in the same quarter a year prior.
In December 2013, American Airlines merged with US Airways in an effort to avoid bankruptcy.
Parker saw the merger as a success at the end of Q4, stating “Our record 2014 results close out a fantastic first year for our merger. These results would not have been possible without the efforts of our more than 100,000 team members…They have done a great job of working together to take care of our customers and restore American as the greatest airline in the world.” He continued, “We have much to do in the year ahead as we continue to integrate two large carriers. The results we have achieved thus far, combined with our economic outlook, give us confidence that 2015 will be another outstanding year for American Airlines.”
However, the company also said revenue for each seat flown one mile would be 2% to 4% lower than a year ago partly due to competition offering lower prices on about different 50 routes. American Airlines shares fell about 5% as a result.
According to SmarterAnalyst, Imperial Capital analyst Bob McAdoo weighed in on American Airlines on January 28th following its Q4 earnings results, maintaining an Outperform rating on the stock with a price target of $92. The analyst named American Airlines as his “top pick,” noting “Updated management commentary provides us greater confidence in the company’s ability to achieve record results in 2015.” McAdoo doesn’t think competition from other airlines will be a huge factor, citing “we suspect that in coming months, these issues will pass as promotional fares return to more normalized levels.” He concluded, “The Company should pass a substantial portion of these cost savings on to investors in the way of share repurchases and the retirement of high interest debt, we believe.”
Bob McAdoo has rated American Airlines 8 times since April 2014, earning a 100% success rate recommending the company and a +33.6% average return per recommendation. Overall, McAdoo has an 85% success rate recommending stocks and a +39.9% average return per recommendation.
Separately on January 28th, Credit Suisse analyst Julie Yates downgraded her rating on American Airlines to Neutral with a $65 price target following the company’s Q4 results. She noted, “Our 2015E rises to $10.80 (from $9.90) as lower fuel and the accelerated buyback offset higher ex fuel unit costs (+3% vs. our 2% est.) & worse unit revenues (-2.5% vs. our flattish est.); we leave 2016E of $9.12 unchanged. With much of this revision driven by fuel, we apply a lower multiple to our fully taxed 2015E to yield our $65 TP & downgrade to Neutral.”
Julie Yates has rated American Airlines twice since December 2014, earning 100% success rate recommending the company and a +16.3% average return per recommendation. Overall, Yates has a 42% success rate recommending stocks and a +5.8% average return per recommendation.