Is AAL Stock's Cheap Valuation Reason Enough to Bet on it?

Core Insights - American Airlines (AAL) shares are considered undervalued within the Zacks Transportation - Airline industry, holding a Value Score of A [1] - AAL's stock is trading at a forward 12-month price-to-sales (P/S) ratio of 0.13X, significantly lower than the industry average of 0.6X and cheaper than competitors like Delta Air Lines (DAL) and United Airlines (UAL) [1][8] Financial Performance - AAL's fuel costs decreased by 13% to $2.67 billion in Q2 2025, aided by lower crude oil prices, which supports margins and pricing flexibility [4][8] - The company has a history of beating earnings expectations, with an average earnings surprise of 50% over the last four quarters [5] - AAL's adjusted EPS outlook for 2025 has been revised down to a range of a loss of $0.20 to a profit of $0.80, compared to a previous forecast of $1.70 to $2.70 [9] Challenges - AAL faces sluggish air travel demand, with an unimpressive outlook for Q3 2025, expecting a loss per share of $0.10 to $0.60 [6][8] - The company has a high debt load, with long-term debt at $25.3 billion and a debt-to-capitalization ratio of 94.9%, significantly above the industry average of 56.6% [9] - Labor costs have escalated, with expenses on salaries and wages increasing by 10.9% year-over-year in Q2 2025, impacting profitability [10] Market Performance - AAL's stock has declined by 35.4% year-to-date, contrasting with the industry's slight growth of 0.1% [10] - Earnings estimates for AAL have been revised downward for Q3 2025, Q4 2025, full-year 2025, and 2026 due to the aforementioned challenges [13] Investment Outlook - Despite attractive valuation and low fuel costs, uncertainty surrounding trade tensions and declining earnings estimates suggest it may not be an opportune time to buy AAL stock [14][15] - Investors are advised to monitor developments closely for a more favorable entry point [15]