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American Airlines shares soared on Thursday after its earnings report.
Daniel Slim / FP via Getty Images
The fight between Wall Street and retail investors landed at the airport with a “retail hijacking” underway, according to an analyst.
American Airlines
The group’s stock (ticker: AAL) skyrocketed after the company released its earnings on Thursday morning. American shares rose up to 20% at the start of trading, although recently they reduced some of those gains to trade 10% higher, at around $ 18. American shares were one of the most traded issues on Thursday, with more than 196 million shares traded.
The stock closed more than 6% on Wednesday, after rising 14% during the day, before its report.
Southwest Airlines
(LUV) and
JetBlue Airways
(JBLU) also rose – about 1% in recent negotiations – after both operators reported results for the fourth quarter that exceeded consensus earnings predictions.
American did not turn off the lights with its report, but managed to lose a little less than Wall Street expected. The carrier reported an adjusted loss of $ 3.86 per share, exceeding estimates of a loss per share of $ 4.11. The $ 4 billion revenue exceeded the $ 3.9 billion estimate. He reported a net loss of $ 2.3 billion, slightly worse than forecasts for $ 2.2 billion.
These results are unlikely to qualify as an overflow, but American is the airline’s best-selling stock, with 25% of the outstanding shares kept short. A short position is when investors bet against a stock by borrowing shares and selling them – with the aim of repurchasing them at a lower price in the future. As a result, American has become a leading candidate for a handshake, in which pessimistic investors must cover these short positions by buying shares – putting upward pressure on the shares.
This dynamic is fueling a craze in some heavily sold shares, mainly
GameStop
(GME) and
AMC Entertainment Holdings
(AMC). One explanation is that an army of retail investors took stock, challenging pessimistic analysts and hedge funds, and triggering “short-squeezes”. According to The Wall Street Journal, American’s shares appeared on Wednesday on Wallstreetbets – a forum where individual investors came together around heavily sold shares like GameStop and AMC.
Analysts were quick to point out that the rise in American shares is challenging the fundamentals. The move “is clearly not related to your earnings, with short interest being the only factor that currently matters for the performance of the shares,” wrote Savanthi Syth of Raymond James.
American’s forecast for the first quarter did not indicate any sequential improvement – similar to the weak outlook issued by
Delta Airlines
(DAL) and United Airlines Holdings (UAL) last week. American’s route network has more exposure to some strong leisure markets, Syth notes, and is progressing on cost-cutting initiatives for 2021. But it also faces some headwinds in the short term, particularly its exposure to Mexico / Caribbean routes , which may be adversely affected by the new U.S. testing requirements for all international travelers.
Citigroupin
Stephen Trent reiterated a sell-out rating on the shares, saying the short-squeeze could be a “retail hijacking”. American has the largest debt burden of any major operator and significant exposure to the weak business travel segment, he notes, and is not distinguishing itself with superior technology or strategy.
American’s continued losses, $ 34 billion in net debt and lack of clarity in reserves “do not seem optimistic,” he writes.
But he acknowledged that speculative dynamics are oppressing traditional analysis. “It seems difficult to make stock recommendations on what appears to be the sentiment of the retail investor, especially when it is difficult to conclude that that sentiment will not change in a few weeks,” he writes.
Helane Becker, from Cowen, shared this interpretation, writing that the American’s actions are “shifting” from the fundamentals. On the positive side, American could take the opportunity to issue shares at higher prices, using the proceeds to de-leverage its balance sheet. But that would dilute earnings per share even more, assuming they did.
Write to Daren Fonda at [email protected]