Intrinsic value of American Airlines Group - AAL

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$43.98

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$43.98

 
Intrinsic value

$74.73

 
Up/down potential

+70%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AAL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 22.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -1.98
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  40,180
  40,984
  41,926
  43,004
  44,213
  45,554
  47,025
  48,626
  50,360
  52,227
  54,232
  56,376
  58,664
  61,100
  63,689
  66,437
  69,348
  72,430
  75,689
  79,133
  82,769
  86,605
  90,651
  94,916
  99,409
  104,142
  109,125
  114,369
  119,888
  125,695
  131,802
Variable operating expenses, $m
 
  34,787
  35,578
  36,481
  37,496
  38,620
  39,854
  41,198
  42,652
  44,218
  45,900
  47,289
  49,208
  51,252
  53,424
  55,728
  58,170
  60,756
  63,489
  66,378
  69,428
  72,646
  76,040
  79,617
  83,386
  87,356
  91,536
  95,935
  100,565
  105,435
  110,558
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  34,896
  34,787
  35,578
  36,481
  37,496
  38,620
  39,854
  41,198
  42,652
  44,218
  45,900
  47,289
  49,208
  51,252
  53,424
  55,728
  58,170
  60,756
  63,489
  66,378
  69,428
  72,646
  76,040
  79,617
  83,386
  87,356
  91,536
  95,935
  100,565
  105,435
  110,558
Operating income, $m
  5,284
  6,197
  6,349
  6,522
  6,717
  6,933
  7,170
  7,429
  7,708
  8,009
  8,332
  9,087
  9,456
  9,848
  10,266
  10,708
  11,178
  11,674
  12,200
  12,755
  13,341
  13,959
  14,611
  15,299
  16,023
  16,786
  17,589
  18,434
  19,324
  20,260
  21,244
EBITDA, $m
  7,102
  8,247
  8,437
  8,654
  8,897
  9,167
  9,463
  9,785
  10,134
  10,510
  10,913
  11,345
  11,805
  12,295
  12,816
  13,369
  13,955
  14,575
  15,231
  15,924
  16,656
  17,428
  18,242
  19,100
  20,004
  20,957
  21,959
  23,015
  24,125
  25,294
  26,523
Interest expense (income), $m
  867
  855
  687
  723
  764
  810
  861
  917
  979
  1,045
  1,116
  1,193
  1,275
  1,362
  1,455
  1,554
  1,659
  1,770
  1,888
  2,013
  2,144
  2,283
  2,430
  2,584
  2,747
  2,919
  3,100
  3,290
  3,491
  3,702
  3,924
Earnings before tax, $m
  4,299
  5,342
  5,662
  5,800
  5,954
  6,123
  6,309
  6,511
  6,729
  6,964
  7,216
  7,894
  8,181
  8,486
  8,810
  9,154
  9,518
  9,904
  10,311
  10,742
  11,196
  11,676
  12,181
  12,714
  13,276
  13,867
  14,489
  15,144
  15,833
  16,558
  17,320
Tax expense, $m
  1,623
  1,442
  1,529
  1,566
  1,607
  1,653
  1,703
  1,758
  1,817
  1,880
  1,948
  2,131
  2,209
  2,291
  2,379
  2,472
  2,570
  2,674
  2,784
  2,900
  3,023
  3,152
  3,289
  3,433
  3,584
  3,744
  3,912
  4,089
  4,275
  4,471
  4,677
Net income, $m
  2,676
  3,900
  4,133
  4,234
  4,346
  4,470
  4,606
  4,753
  4,912
  5,084
  5,268
  5,763
  5,972
  6,195
  6,431
  6,683
  6,948
  7,230
  7,527
  7,842
  8,173
  8,523
  8,892
  9,281
  9,691
  10,123
  10,577
  11,055
  11,558
  12,087
  12,644

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,359
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  51,274
  45,792
  46,845
  48,049
  49,400
  50,898
  52,541
  54,331
  56,268
  58,354
  60,594
  62,990
  65,546
  68,268
  71,161
  74,231
  77,484
  80,927
  84,569
  88,416
  92,479
  96,766
  101,286
  106,051
  111,072
  116,360
  121,927
  127,787
  133,953
  140,441
  147,264
Adjusted assets (=assets-cash), $m
  44,915
  45,792
  46,845
  48,049
  49,400
  50,898
  52,541
  54,331
  56,268
  58,354
  60,594
  62,990
  65,546
  68,268
  71,161
  74,231
  77,484
  80,927
  84,569
  88,416
  92,479
  96,766
  101,286
  106,051
  111,072
  116,360
  121,927
  127,787
  133,953
  140,441
  147,264
Revenue / Adjusted assets
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
Average production assets, $m
  31,546
  32,172
  32,912
  33,758
  34,708
  35,760
  36,914
  38,171
  39,532
  40,998
  42,572
  44,255
  46,051
  47,964
  49,996
  52,153
  54,438
  56,857
  59,416
  62,119
  64,973
  67,985
  71,161
  74,509
  78,036
  81,751
  85,663
  89,780
  94,112
  98,670
  103,464
Working capital, $m
  -3,548
  -8,197
  -8,385
  -8,601
  -8,843
  -9,111
  -9,405
  -9,725
  -10,072
  -10,445
  -10,846
  -11,275
  -11,733
  -12,220
  -12,738
  -13,287
  -13,870
  -14,486
  -15,138
  -15,827
  -16,554
  -17,321
  -18,130
  -18,983
  -19,882
  -20,828
  -21,825
  -22,874
  -23,978
  -25,139
  -26,360
Total debt, $m
  24,344
  18,068
  19,015
  20,099
  21,315
  22,663
  24,142
  25,753
  27,496
  29,374
  31,390
  33,546
  35,847
  38,296
  40,900
  43,663
  46,590
  49,690
  52,967
  56,430
  60,086
  63,944
  68,013
  72,301
  76,820
  81,579
  86,589
  91,863
  97,413
  103,252
  109,393
Total liabilities, $m
  47,489
  41,213
  42,160
  43,244
  44,460
  45,808
  47,287
  48,898
  50,641
  52,519
  54,535
  56,691
  58,992
  61,441
  64,045
  66,808
  69,735
  72,835
  76,112
  79,575
  83,231
  87,089
  91,158
  95,446
  99,965
  104,724
  109,734
  115,008
  120,558
  126,397
  132,538
Total equity, $m
  3,785
  4,579
  4,684
  4,805
  4,940
  5,090
  5,254
  5,433
  5,627
  5,835
  6,059
  6,299
  6,555
  6,827
  7,116
  7,423
  7,748
  8,093
  8,457
  8,842
  9,248
  9,677
  10,129
  10,605
  11,107
  11,636
  12,193
  12,779
  13,395
  14,044
  14,726
Total liabilities and equity, $m
  51,274
  45,792
  46,844
  48,049
  49,400
  50,898
  52,541
  54,331
  56,268
  58,354
  60,594
  62,990
  65,547
  68,268
  71,161
  74,231
  77,483
  80,928
  84,569
  88,417
  92,479
  96,766
  101,287
  106,051
  111,072
  116,360
  121,927
  127,787
  133,953
  140,441
  147,264
Debt-to-equity ratio
  6.432
  3.950
  4.060
  4.180
  4.310
  4.450
  4.590
  4.740
  4.890
  5.030
  5.180
  5.330
  5.470
  5.610
  5.750
  5.880
  6.010
  6.140
  6.260
  6.380
  6.500
  6.610
  6.710
  6.820
  6.920
  7.010
  7.100
  7.190
  7.270
  7.350
  7.430
Adjusted equity ratio
  -0.057
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,676
  3,900
  4,133
  4,234
  4,346
  4,470
  4,606
  4,753
  4,912
  5,084
  5,268
  5,763
  5,972
  6,195
  6,431
  6,683
  6,948
  7,230
  7,527
  7,842
  8,173
  8,523
  8,892
  9,281
  9,691
  10,123
  10,577
  11,055
  11,558
  12,087
  12,644
Depreciation, amort., depletion, $m
  1,818
  2,051
  2,088
  2,131
  2,180
  2,234
  2,292
  2,357
  2,426
  2,501
  2,581
  2,258
  2,350
  2,447
  2,551
  2,661
  2,777
  2,901
  3,031
  3,169
  3,315
  3,469
  3,631
  3,801
  3,981
  4,171
  4,371
  4,581
  4,802
  5,034
  5,279
Funds from operations, $m
  6,792
  5,950
  6,222
  6,365
  6,526
  6,704
  6,898
  7,110
  7,338
  7,585
  7,849
  8,021
  8,322
  8,642
  8,982
  9,343
  9,726
  10,131
  10,559
  11,011
  11,488
  11,992
  12,523
  13,083
  13,673
  14,294
  14,947
  15,636
  16,360
  17,122
  17,923
Change in working capital, $m
  268
  -161
  -189
  -216
  -242
  -268
  -294
  -320
  -347
  -374
  -401
  -429
  -458
  -487
  -518
  -549
  -582
  -616
  -652
  -689
  -727
  -767
  -809
  -853
  -899
  -947
  -997
  -1,049
  -1,104
  -1,161
  -1,221
Cash from operations, $m
  6,524
  7,898
  6,410
  6,581
  6,768
  6,972
  7,192
  7,430
  7,685
  7,958
  8,250
  8,449
  8,779
  9,129
  9,500
  9,893
  10,308
  10,747
  11,211
  11,700
  12,216
  12,759
  13,332
  13,936
  14,571
  15,240
  15,944
  16,685
  17,464
  18,283
  19,144
Maintenance CAPEX, $m
  0
  -1,609
  -1,641
  -1,679
  -1,722
  -1,771
  -1,824
  -1,883
  -1,948
  -2,017
  -2,092
  -2,172
  -2,258
  -2,350
  -2,447
  -2,551
  -2,661
  -2,777
  -2,901
  -3,031
  -3,169
  -3,315
  -3,469
  -3,631
  -3,801
  -3,981
  -4,171
  -4,371
  -4,581
  -4,802
  -5,034
New CAPEX, $m
  -5,731
  -627
  -740
  -846
  -950
  -1,052
  -1,155
  -1,257
  -1,361
  -1,466
  -1,573
  -1,683
  -1,796
  -1,912
  -2,032
  -2,157
  -2,286
  -2,419
  -2,558
  -2,703
  -2,854
  -3,012
  -3,176
  -3,348
  -3,527
  -3,715
  -3,912
  -4,117
  -4,332
  -4,558
  -4,794
Cash from investing activities, $m
  -5,698
  -2,236
  -2,381
  -2,525
  -2,672
  -2,823
  -2,979
  -3,140
  -3,309
  -3,483
  -3,665
  -3,855
  -4,054
  -4,262
  -4,479
  -4,708
  -4,947
  -5,196
  -5,459
  -5,734
  -6,023
  -6,327
  -6,645
  -6,979
  -7,328
  -7,696
  -8,083
  -8,488
  -8,913
  -9,360
  -9,828
Free cash flow, $m
  826
  5,661
  4,029
  4,056
  4,096
  4,149
  4,213
  4,289
  4,377
  4,475
  4,584
  4,594
  4,725
  4,867
  5,021
  5,185
  5,362
  5,550
  5,751
  5,965
  6,192
  6,433
  6,688
  6,957
  7,242
  7,544
  7,862
  8,197
  8,551
  8,923
  9,316
Issuance/(repayment) of debt, $m
  3,874
  -4,421
  948
  1,084
  1,216
  1,348
  1,479
  1,610
  1,743
  1,878
  2,016
  2,156
  2,301
  2,450
  2,604
  2,763
  2,928
  3,099
  3,277
  3,463
  3,656
  3,858
  4,069
  4,289
  4,519
  4,759
  5,011
  5,274
  5,550
  5,839
  6,141
Issuance/(repurchase) of shares, $m
  -4,500
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -670
  -4,421
  948
  1,084
  1,216
  1,348
  1,479
  1,610
  1,743
  1,878
  2,016
  2,156
  2,301
  2,450
  2,604
  2,763
  2,928
  3,099
  3,277
  3,463
  3,656
  3,858
  4,069
  4,289
  4,519
  4,759
  5,011
  5,274
  5,550
  5,839
  6,141
Total cash flow (excl. dividends), $m
  156
  1,240
  4,977
  5,139
  5,312
  5,497
  5,692
  5,900
  6,120
  6,353
  6,600
  6,750
  7,026
  7,317
  7,624
  7,948
  8,290
  8,650
  9,029
  9,428
  9,848
  10,291
  10,756
  11,246
  11,761
  12,303
  12,872
  13,471
  14,100
  14,762
  15,457
Retained Cash Flow (-), $m
  1,850
  -5,298
  -105
  -120
  -135
  -150
  -164
  -179
  -194
  -209
  -224
  -240
  -256
  -272
  -289
  -307
  -325
  -344
  -364
  -385
  -406
  -429
  -452
  -477
  -502
  -529
  -557
  -586
  -617
  -649
  -682
Prev. year cash balance distribution, $m
 
  4,504
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  446
  4,871
  5,019
  5,177
  5,347
  5,528
  5,721
  5,926
  6,145
  6,376
  6,511
  6,770
  7,045
  7,335
  7,641
  7,964
  8,305
  8,665
  9,043
  9,442
  9,862
  10,304
  10,769
  11,259
  11,774
  12,315
  12,885
  13,484
  14,113
  14,775
Discount rate, %
 
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.42
  17.24
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
  28.09
  29.49
  30.97
  32.52
PV of cash for distribution, $m
 
  413
  4,154
  3,907
  3,648
  3,381
  3,106
  2,828
  2,550
  2,275
  2,007
  1,719
  1,480
  1,256
  1,050
  864
  699
  556
  433
  331
  248
  181
  130
  90
  61
  40
  26
  16
  10
  6
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

American Airlines Group Inc., through its subsidiaries, operates as a network air carrier. It provides scheduled air transportation services for passengers and cargo. As of December 31, 2016, the company operated a mainline fleet of 930 aircraft. It serves 350 destinations in approximately 50 countries, principally from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, and Phoenix, as well as in Washington, D.C. The company was formerly known as AMR Corporation and changed its name to American Airlines Group Inc. in December 2013. American Airlines Group Inc. was founded in 1934 and is headquartered in Fort Worth, Texas.

FINANCIAL RATIOS  of  American Airlines Group (AAL)

Valuation Ratios
P/E Ratio 8.3
Price to Sales 0.6
Price to Book 5.9
Price to Tangible Book
Price to Cash Flow 3.4
Price to Free Cash Flow 28.1
Growth Rates
Sales Growth Rate -2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.8%
Cap. Spend. - 3 Yr. Gr. Rate 13%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 594.2%
Total Debt to Equity 643.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 19%
Return On Equity 56.8%
Return On Equity - 3 Yr. Avg. -185.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 35.6%
Gross Margin - 3 Yr. Avg. 32.9%
EBITDA Margin 17.4%
EBITDA Margin - 3 Yr. Avg. 15.8%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 9.8%
Net Profit Margin 6.7%
Net Profit Margin - 3 Yr. Avg. 10.7%
Effective Tax Rate 37.8%
Eff/ Tax Rate - 3 Yr. Avg. -5.6%
Payout Ratio 8.4%

AAL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAL stock intrinsic value calculation we used $40180 million for the last fiscal year's total revenue generated by American Airlines Group. The default revenue input number comes from 2016 income statement of American Airlines Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AAL stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.9%, whose default value for AAL is calculated based on our internal credit rating of American Airlines Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of American Airlines Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AAL stock the variable cost ratio is equal to 84.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AAL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for American Airlines Group.

Corporate tax rate of 27% is the nominal tax rate for American Airlines Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AAL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AAL are equal to 78.5%.

Life of production assets of 19.6 years is the average useful life of capital assets used in American Airlines Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AAL is equal to -20%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3785 million for American Airlines Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 501.418 million for American Airlines Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of American Airlines Group at the current share price and the inputted number of shares is $22.1 billion.


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Stock chart of AAL Financial statements of AAL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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