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American Airlines Group Inc. (NASDAQ: AAL) has been the top performing major airline so far this year and it could be on track to fly even higher, at least according to one analyst.

Jefferies upgraded American Airlines to a Hold rating from Underperform and raised its price target to $25 from $15, implying an upside of 9% from the most recent closing price of $22.91.

Overall, Jefferies believes that American Airlines may be the best positioned of the network carriers to outperform through the recovery considering a couple factors. First, the company has a younger fleet at roughly 10.8 years compared to its peers at around 15 years. Also American Airlines has a strong network positioning as the sole operator on 37% of routes compared with about 25% for its peers.

Rising fuel prices have weighed heavily on some airlines but with a younger fleet there is greater fuel efficiency. As jet fuel has risen from around $1.00 per gallon to close to $1.75 currently, the ability to efficiently operate a fleet has returned to focus, as next-generation aircraft can typically provide roughly 15% greater fuel efficiency compared to previous generation aircraft.

A sole-operator position allows for significantly greater yield control, with American Airlines’ routes with 2 competing airlines driving yields about 60% below routes that have no competing airlines. In a rising fuel environment, the firm can pass on a greater portion of costs to consumers with less risk of a bad actor competing on price.

Jefferies further detailed in the report:

Our bull case is derived from two self-help initiatives. First, yield could improve from 2019 levels given recently announced partnerships with JetBlue and Alaska, which could drive revenues 2% higher. Secondly in terms of expenses, AAL has removed $1.3BB of permanent cost costs combined with lower fuel prices, 12% below 2019 levels, could drive expenses 6% lower. The partial offset is higher interest expense ($300MM) and a 30% higher share count. Nonetheless, a bull case points to Adj. EPS of $8.11, 65% about the 2019 base. Putting a historical multiple on the bull case Adj. EBITDA of $9.4BB, a fair valuation could be >$65/share, slightly above the Q1:18 peak.

American Airlines stock was last seen up about 3% at $23.58, with a 52-week range of $8.25 to $26.09. The consensus analyst price target is $15.27.

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