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Jason Redmond / AFP via Getty Images
At least one airline is taking advantage of the short-squeeze mania, planning to use its high stock price to issue more shares.
American Airlines Group
(ticker: AAL) said in a securities filing on Friday that it planned to raise $ 1.1 billion in new share issues. The carrier’s stock took off this week, gaining more than 15% as the company prepared to report earnings on Thursday.
American is the most courted stock among airlines, with around 25% of outstanding shares held short. It appears to have been improved by a short-squeeze, a dynamic where prices rise as traders who are short (betting against a stock by borrowing and then selling stocks) strive to cover their losses by buying stocks, which is fueling the price gains.
At recent prices around $ 17.40, US stocks are trading at their highest levels since last June. It has increased by around 11% this year, but remains down more than 35% in the past 52 weeks.
American has issued 68.5 million shares since last October, at an average price of $ 12.87. Issuing an additional 64 million shares at an average price of $ 17 would increase $ 1.1 billion, diluting the outstanding shares by about 10%.
That the American needs to raise so much capital is a sign that he expects a long return to profitability. The carrier burned $ 30 million a day in the fourth quarter, totaling nearly $ 2.8 billion over the three-month period. It shouldn’t get much better in the short term. The airline said this week it expects year-over-year sales to decline 60% to 65% in the first quarter, which is similar to fourth-quarter revenue.
“Stubbornly high Covid-19 cases and tighter travel restrictions have continued to restrict demand,” the airline said in an appeal for results. Indeed, travel trends may actually worsen a bit in the short term as countries reimpose travel bans due to new variants of the coronavirus.
Wall Street expects the company to break even in 2022 and begin reporting significant profits in 2023, expected to be $ 1.98 per share.
Yet the stock is now trading well above analysts’ targets. In fact, the average street goal is around $ 12 a share.
Citigroupof
Stephen Trent kept the stocks short this week with a target of $ 15. Raymond James’ Savanthi Syth reiterated her underperformance rating, although she did not set a goal.
UBS analyst Myles Walton maintained a sell off on the shares with a target of $ 10. It lowered its revenue estimate for 2021 and raised its forecast for operating losses to $ 5.7 billion, from $ 4.5 billion this year.
“The Reddit rally taking control of some stocks in the market briefly found its way to AAL and we would guess that if it returns, the company could find a particularly valuable window to recapitalize,” he wrote in a note. Friday morning.
JP Morgan’s Jamie Baker withdrew his price target on Thursday, though he estimates the stock is worth less than $ 5 a share, in part based on a multiple of seven times 2022 earnings of 1.33 $ per share.
It is generally not a good sign for a stock when analysts withdraw their price targets. Issuing more stocks will help Americans get through another tough year, but it will do a disservice to investors who value the stock on traditional metrics like earnings per share. If the Reddit rally cools, so does the stock.
Write to Daren Fonda at [email protected]
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