American Airlines beat on its EPS estimates, but could be hitting resistance

American Airlines (NYSE: AAL) reported earnings on October 24 and the company beat on the top line, but missed on the bottom line. Analysts expected the company to report earnings per share of $1.38 and the actual number was $1.42. The company came up a little short on its revenue estimate, reporting $11.01 billion and the estimate was for $11.94 billion. The company cited low fuel costs as one reason for the earnings growth. The stock jumped 3.96% after the report.

Despite the optimistic report, the stock could face some headwinds in the coming weeks as there is potential resistance from two different sources just overhead. First, the stock has been trending lower over the last year and a trend channel has formed to define the different cycles over the past year. The upper rail of the channel is right at the $30 mark.

The second potential source of resistance is the 52-week moving average which is at $31.80 currently. The stock hasn’t closed above the trend line since March 2018.

In addition to the potential resistance, the daily stochastic readings are in overbought territory and have been for nine days now. There was also a bearish signal generated by the Tickeron Trend Prediction Engine on October 23. The signal showed a confidence level of 83% and past predictions have been successful 78% of the time. The signal calls for a decline of at least 4% within the next month.

From a fundamental perspective, American Airlines has struggled in recent years. The company has seen earnings decline by 15% per year over the last three years while sales have increased by only 5%. It also has a low profit margin at 6.3%.

Looking at Tickeron’s Fundamental Analysis Overview, the PE Growth Rating is 72 and that points to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents. A rating of 1 indicates highest PE growth while a rating of 100 indicates lowest PE growth.

The Tickeron Price Growth Rating for American Airlines is 83, indicating slightly worse than average price growth. AAL’s price has grown at a lower rate over the last 12 months compared to S&P 500 index constituents. A rating of 1 points to highest price growth (largest percent return) while a rating of 100 points to lowest price growth (smallest percent return).

Finally, the Tickeron Profit vs. Risk Rating for American is 100, indicating that the returns do not compensate for the risks. Unstable profits reported over time resulted in significant drawdowns within the last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating for the industry is 73, placing this stock worse than average.

Sentiment toward American Airlines is a little more pessimistic than the average stock, but that is to be expected when a stock has been trending lower and when the company has seen earnings decline. There are 21 analysts covering the stock at this time with 11 “buy” ratings, eight “hold” ratings, and two “sell” ratings. This puts the buy percentage at 52.4%, below the average range of 65% to 75%.

The short interest ratio is 3.7 currently and that is slightly higher than the average around the 3.0 mark. The number of shares sold short did jump by 1.75 million in the most recent reporting period.