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At least one airline is taking advantage of the mania to press short, planning to use its high stock price to issue more equity.
American Airlines Group
(ticker: AAL) said Friday in a securities presentation that it plans to raise $ 1.1 billion in new equity issues. The company’s shares came out this week and gained more than 15% as the company prepared to issue profits on Thursday.
American is the stock of the shortest airlines, with about 25% of the shares pending. It seems to have gained momentum for a rapid decline, a dynamic in which prices rise as short traders (betting on a stock on loan and then selling shares) skyrocket to cover their losses by buying stocks, fueling the gains of prices.
At recent prices hovering around $ 17.40, US stocks have been trading at their highest levels since last June. It has increased by about 11% this year, but continues to fall by more than 35% in the last 52 weeks.
American has issued 68.5 million shares since last October, at an average price of $ 12.87. The issuance of another 64 million shares at an average price of $ 17 would increase $ 1.1 billion, diluting outstanding shares by about 10%.
That Americans need to raise so much capital is a sign that expects a long return on profitability. The carrier burned $ 30 million daily in the fourth quarter, totaling about $ 2.8 billion over the three-month period. This is unlikely to improve much in the short term. The airline said this week that it expects year-on-year sales to drop from 60% to 65% in the first quarter, similar to fourth-quarter revenue.
“Highly stubborn Covid-19 cases and stricter travel restrictions continued to limit demand,” the airline said in a earnings call. In fact, travel trends may worsen somewhat in the short term, as countries re-impose travel bans due to new coronavirus variants.
Wall Street expects the company to break up in 2022 and begin reporting significant gains in 2023, projected at $ 1.98 per share.
However, stocks are now trading above analysts ’targets. In fact, the average target on the street is about $ 12 per share.
Citigroup‘s
Stephen Trent has held a stock sale this week with a $ 15 target. Raymond James’s Savanthi Syth reiterated his low-performing score, though he doesn’t set any goals.
UBS analyst Myles Walton held a sell-off on the $ 10 target. It cut its revenue forecast for 2021 and raised its operating loss forecast to $ 5.7 billion, from $ 4.5 billion this year.
“The concentration of Reddit that took over some market shares was briefly addressed to AAL and we would assume that if it returns, the company could find a particularly valuable window to recapitalize,” he wrote in a note on Friday morning.
JP Morgan’s Jamie Baker withdrew his price target on Thursday, though he estimates the shares are worth less than $ 5 per share, based in part on a seven-time 2022 earnings multiple of $ 1.33. per action.
It is usually not a good signal for a stock when analysts withdraw their price targets. Issuing more equity will help Americans have another difficult year, but it will do no favors to investors who value stocks according to traditional measures, such as earnings per share. If the Reddit rally cools down, so can the shares.
Write to Daren Fonda at [email protected]