US earnings preview: American Airlines share price overbought ahead of Q2 results

When is the American Airlines earnings date?

American Airlines Group Inc. (NASDAQ: AAL) is scheduled to release results for the second fiscal quarter (Q2 2023) on the 21st of July.

American Airlines Q2 2023 earnings preview, what does ‘The Street’ expect?

American Airlines Group Inc. has recently made a positive adjustment to its earnings per share (EPS) guidance for the second quarter of 2023. The airline giant has now projected its EPS in the range of $1.45−$1.65, up from the previous forecast of $1.20−$1.40.

The improved outlook is a direct result of increasing travel demand trends and better fuel pricing.

Average ticket prices have seen a reduction, even as overall capacity has seen an expansion. This implies that while more seats are available for passengers, the revenue generated per ticket has declined. The challenge, therefore, lies in maintaining profitability while ensuring that the increased capacity is effectively utilized.

American Airlines is expected to capitalize on the resilient travel demand in the upcoming quarters. This should lead to a continued increase in total available seat miles – a key airline industry metric that refers to the total number of miles flown by all the seats available on all flights.

Is American Airlines a buy at current levels?

One of the key challenges that American Airlines faces is its high debt levels. The company's total debt of around $35bn amounts to roughly 120% of total equity. Given the prevailing high interest rates, the cost of servicing this debt is expected to remain high in the near term. This, in turn, could have an impact on the company's overall bottom-line growth.

American Airlines' revised guidance reflects a positive outlook, backed by strong demand trends and current fuel price forecast. However, the high debt level remains a concern for the company. Traders should keep a close watch on the company's strategy to manage its debt, along with its ability to capitalize on the robust travel demand, to make informed investment decisions.
After the recent run in the share price, there is the suggestion that the company currently trades around its fair value assumption at present.

A Refinitiv poll of twenty analysts maintain a long-term average rating of hold for American Airlines (as of the 14th of July 2023.

How to trade American Airline shares

The share price of American Airlines trades firmly above the 200-day simple moving average (200MA) (blue line), although is looking overbought in the near term.

The overbought signal suggests that perhaps a short-term correction or consolidation in price might occur before the long-term uptrend is resumed.

Trend followers might prefer to find long entry on a pullback towards support at around the 17.40 to 16.80 levels before targeting further gains. That is if we see a pullback ending with a bullish candlestick / price reversal. In this scenario a close below the reversal low after a pullback might be used as a stop loss indication while in search for a move back towards the recent high and 19.65 levels.