Hudson Securities Discusses AMR's Earnings (AMR)

Hudson Securities is out with a research report on AMR Corporation AMR, after it reported earnings. It has a Neutral rating and a $8 price target on shares. In a note to clients, Hudson writes, "AMR mgmt reports improving revenue health (domestically and internationally) in its cornerstone markets, aided by several recent industry pricing actions. However, the execution risk behind the carrier's new network strategy in very crowded markets is a key, critical issue that keeps us cautious looking ahead. Our concern remains a capacity glut and thus pricing pressure in the markets that matter most; economy plus offered at competitors is yet another competitive irritant/revenue risk for AMR mgmt. Based on schedules data, we're seeing AMR grow 2Q ASMs 21% at JFK, 7% at MIA, & 5% increase at LAX. If looking instead at seats, the capacity increases are: 32%, 8% and 11% respectively – big increases at 3 of the carrier's 5 cornerstone markets. In the process, AMR in 2Q is dialing up competitive capacity 10% in DAL's markets; 6% in JBLU's; 6% in LUV's; 6% in UAL's; and 7% in LCC's; see our 4/19 industry note. Mgmt reports there could be some “burn” [ie. revenue dilution] initially. Mgmt wouldn't say or elaborate, but we inferred: AMR has lost corporate travel business and the changes are AMR's way of clawing it back. And at this point, it's less about ROIC, more about protecting the revenue breadbasket. In short: there is too much revenue risk for us to be comfortable near-term; longer-term there could be enough demand for mgmt to realize modest success as AA's capacity in 3 of its cornerstone markets is less or about even vs 3 years ago. One counterintuitive bright spot: AMR's system wide competitive dynamic ranks 2nd best in the industry, with overall competitive capacity from others up 1.8% YoY in 2Q and 2.8% YoY in 3Q" Shares of AMR closed at $5.64 yesterday.