American Airlines (AAL) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.
The upward trend in estimate revisions for this world's largest airline reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For American Airlines, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The earnings estimate of $0.05 per share for the current quarter represents a change of -94.7% from the number reported a year ago.
Over the last 30 days, two estimates have moved higher for American Airlines while one has gone lower. As a result, the Zacks Consensus Estimate has increased 386.49%.
Current-Year Estimate Revisions
For the full year, the earnings estimate of $0.49 per share represents a change of +36.1% from the year-ago number.
The revisions trend for the current year also appears quite promising for American Airlines, with seven estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 792.54%.
Favorable Zacks Rank
The promising estimate revisions have helped American Airlines earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
American Airlines shares have added 5.5% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.
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American Airlines Group Inc. (AAL): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).