Shares of American Airlines Group Inc. have fallen enough over the past week that longtime bearish analyst Scott Grupp at Wolff Research said it’s time to stop selling. Scott raised its rating on the Texas-based air carrier to peer perform, after at least underperforming for the past three years. He removed his stock price target, after his previous target of $14 made him the most bearish of 22 analysts surveyed by FactSet. Its upgrade comes after stock AAL, -1.20% tumbled 14.9% over the past six sessions to close at $14.12 on Thursday, or slightly above its previous target. That compares with an 11.6% decline in the US Global Jets exchange-traded fund JETS, -1.68%, and a 0.8% decline in the S&P 500 index SPX, -0.47% over the same period. And despite this recent selloff, short interest, or bearish bets on the stock, remains relatively high. “[American’s stock] remains heavily shorted with 10% short interest, but has consistently outperformed and outperformed estimates in recent quarters while running fairly clean operations,” Scott wrote in a note to clients. The company has been profitable for the past three quarters and has been profitable for the past eight quarters. Seven’s bottom-line beat expectations. Short interest, or the number of shares short, represented 9.77% of the public float, or shares available for public trading, according to recent exchange data. That compares with 3.41% for Delta’s shares and 4.39% for United’s shares. Some people on Wall Street see high short interest as a bullish sign, because those who placed those bets will buy back if the stock begins to rally, an action known as short covering. “mem-stocks.” The craze involved heavily shorting stocks. Read more about how short selling works. Additionally, Scott said that while American Airlines still carries a high debt load, he believes free cash flow will exceed $2 billion in 2023. The company is expected to significantly reduce its debt this year. And there was a reason for its earlier recession. That American’s margin previously exceeded that of rival Delta Air Lines Inc. DAL, -2.36% was behind “bad and persistent” and United Airlines Holdings Inc. UAL, -0.73% was also “consistently behind”. “But in recent quarters, the margin gap vs. [Delta] is clearly compressed, while it remains relatively flat [United],” Scott wrote in a note to clients. American Airlines stock, which fell 0.1% in Friday’s premarket, has gained 10.2% in the past three months through Thursday, while the Jets ETF has gained 2.4% and the S&P 500 has gained 2.8%.
