Is American Airlines a Buy After Omicron Sends Shares to New Lows? (NASDAQ:AAL)

Dragged down by the sudden spread of the Omicron variant, American Airlines (NASDAQ: AAL) has stumbled since mid-November, causing stock to run out a new low of 52 weeks. The renewed headwinds the company faced at the end of 2021 saw the airline incurring losses in another quarter as the COVID outbreak continues to weigh on its results. Could the stock regain its footing once the pandemic is finally over and be a boon to investors?

Omicron halts airline recovery

From the first half of November, American Airlines (AAL) appeared to be building momentum. The stock had hit a five-month high as the company hit a quarter that marked its smallest loss since the start of the pandemic.

However, at the end of that month, the Omicron variant was identified and presented a huge roadblock to AAL’s recovery. By Christmas, AAL, along with most of the airline industry, had to cancel flights during its busiest travel season in two years as waves of workers came crashing down with the new form of COVID.

The result was a setback for the company’s finances. Last week, the company reported a net loss of $931 million for the fourth quarter. This was a dramatic improvement from the nearly $2.2 billion lost in the fourth quarter of last year. But last quarter’s loss also outweighed the loss in the third quarter, marking the airline’s eighth straight quarter of red ink.

In the wake of the quarterly results, Doug Parker, the company’s CEO, predicted that demand would stabilize in 30-60 days, a time frame that would point to late February or March. That’s in line with comments from other industry leaders. Delta Air Lines CEO Ed Bastian reported that pre-booking data points to “really robust” demand from President’s Day weekend, which begins Feb. 19.

Is American Airlines a sale?

As of early November, when the stock traded above USD 22, AAL has retreated to a 52-week low of USD 14.91 on Friday. The stock hit that low and traded around 2:30 p.m. ET at $15.39, still down about 2.5% for the day.

The outlook for a significant inventory recovery appears to be related to Parker’s prediction that demand will increase in a post-Omicron economy. This model is supported by a look at Seeking Alpha’s Quant Ratings, which rate a company on various metrics based on quantifiable information.

The stock gets a solid valuation score, which is at a B. Meanwhile, its growth has surged to an A, compared to the F it received three months ago. However, the company is saddled with a D for profitability (unsurprising in a company that has suffered losses for eight consecutive quarters). At the same time, it gets a D+ for momentum.

These Quant Ratings suggest that an earnings recovery could spark serious investor interest in the stock. As AAL remains relatively cheap and has strong revenue growth prospects, the ability to achieve profitability and fuel inventory momentum should provide an improving profile.

Meanwhile, SA contributor Stone Fox Capital called the current slide the “last break before full recovery.” For a different perspective, read a bearish version of Reality Check Research, which states that AAL has a balance problem.

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