Bernstein upgrades American Airlines, 'closer to a have than a have-not'

Investing.com -- Bernstein analysts raised American Airlines (NASDAQ:AAL) to Outperform from Market-Perform on Tuesday, highlighting a combination of an improved industry backdrop and a new co-branded credit card deal that promises to generate significant cash flow.

The firm also increased its price target for the stock to $24 from $14, reflecting the airline’s improved financial prospects.

“The pricing and revenue environment has continued to improve,” Bernstein wrote, with American Airlines increasing its fourth-quarter 2024 earnings guidance by 73%, now expecting earnings per share in the range of $0.55-$0.75. 

Lower fuel costs and stronger pricing are key drivers of the updated outlook.

The analysts also pointed to American Airlines’ recently announced exclusive co-branded credit card partnership with Citi, which will begin in January 2026. 

The deal is expected to boost annual remuneration from credit card and other partnerships by 10% from 2024 levels, with projected revenue approaching $10 billion. 

According to Bernstein, this could translate into an additional $1.5 billion in pre-tax income compared to 2024.

The new, steady revenue stream is said to address a major critique of the airline: its high leverage. 

Bernstein estimates the terminal value of the credit card deal at approximately $12 billion, which "changes the story for an airline critiqued for its high leverage." 

The analysts believe the deal will enable American Airlines to pay down debt more effectively, significantly improving its financial outlook.

While challenges in corporate and agency revenue recovery are expected to persist through the end of 2025, Bernstein sees the consistent cash flow from the credit card partnership as transformative. 

This development moves Bernstein to believe American Airlines is "closer to a have than a have-not," solidifying its position as a more robust competitor in the airline industry.