Why American Airlines Stock Is Elevating Today

Key Points

• American and other airlines are rallying after Delta produced better-than-expected quarterly results.

• Airlines are not all created equal, and investors should be choosy about the stocks they pick.

• 10 stocks we like better than American Airlines Group ›

Airline earnings season got off to a strong start, with Delta Air Lines (NYSE: DAL) generating better-than-expected results. Investors are rushing in to buy shares throughout the airline sector, sending American Airlines Group (NASDAQ: AAL) stock up 12% as of 1:30 p.m. ET.

Image source: American Airlines

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Reading the tea leaves on Delta earnings

First-quarter earnings painted a sobering picture of the airline industry. Carriers talked back expectations for the year due to concerns about inflation and tariffs, leaving investors uncertain about what was to come.

On Thursday, Delta delivered results that helped calm those nerves. The company beat expectations and, perhaps more importantly, reinstated full-year guidance with an earnings forecast ahead of the consensus estimate.

Investors are assuming that others are seeing what Delta is seeing, sending shares of American and other airlines higher. It appears demand is holding up well through the all-important summer vacation season, which should lift results for other airlines as well.

Is American Airlines stock a buy?

With airline stocks, quality matters. American has $29.4 billion in long-term debt, about double Delta's total. While the airline should have the wherewithal to cover that debt, it does leave the company more vulnerable to a potential downturn up ahead.

Factoring in that debt, American and Delta have approximately the same enterprise value-to-earnings multiple. Given the volatility of the airline sector, Delta is likely a better choice for most investors.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.