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Bull of the Day: American Airlines

Despite winter storm worries, the airline sector has been flying pretty high as of late and for good reason too. The segment is experiencing one of its most profitable and in-demand stretches in years, and many believe the run could continue into 2015 too.

After all, with the rash of mergers over the past few years, airline competition is relatively low giving many airlines pricing power in a number of key routes. Strong consumer demand hasn’t hurt matters either as a more willing-to-spend traveler seems ready to pony up for higher fares, while a more certain job situation is acting as a catalyst for more vacations as well.

And while Ebola worries might have temporarily derailed the sector, the space has fought back quickly and is riding high thanks to one of their highest input costs; oil. Crude oil prices—and thus jet fuel prices—have come down significantly in recent weeks, boosting profits for airlines across the sector, and setting up the space for a stellar start to the New Year.

For these reasons, it is easy to see why the airline industry is in the top 20% of all industries that we cover. And while any number of stocks in this space could be solid in this great environment, a look towards American Airlines (NYSE:AAL) in particular could be an exceptional idea right now.

AAL in Focus

American Airlines is by some measures the largest airline in the world, serving customers across the globe with more than 6,700 daily flights in 56 nations. The company is the result of a merger between AMR (American Airlines’ parent group) and US Airways, continuing the recent trend of consolidation in the industry.

Speaking of trends, American Airlines has, just like its peers, been able to soar in recent times and put up solid profitability numbers as well. Yet even with an 80% surge YTD, there is plenty of reason to hope for more gains heading into 2015 too. This is especially true when investors look to recent earnings estimate revisions for AAL, which definitely suggest more strength ahead for the company.

Earnings Estimates

In the past two months, we have seen a number of solid trends in the earnings estimate revisions for AAL. Seven estimates have gone higher for the current quarter, compared to none lower, while we have seen eight estimates move higher in the past sixty days for the current year estimate, compared to (once again) zero lower.

The magnitude of these revisions has been pretty intense too, as the consensus estimate has soared as a result of these analyst estimate changes. The current quarter consensus estimate has moved from $1.06/share 60 days ago to $1.48/share today, while the current year figure has gone from $5.31/share to $5.66/share over the same time frame.

And while some might think that it will be difficult for AAL to match these lofty expectation, investors should consider the company’s recent history at earnings season. In the past four results, AAL has beaten estimates every time, including a 179% beat four quarters ago.

Bottom Line

Given these solid industry trends and AAL’s impressive metrics on its own, it shouldn’t be too surprising to note that AAL has a Zacks Rank #1 (Strong Buy). This means that we are looking for the company to outperform in the near term, and that it has a pretty bright future thanks to its recent string of earnings estimate revisions.

So if you are still looking for an airline stock in today’s environment, make sure to consider AAL. This air travel behemoth is well-positioned for more appreciation, and it is hard to deny the current industry trends which suggest that more growth is definitely ahead, and not just for AAL, but for the sector as a whole too.

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