Hedge fund sounds alarm about this airline’s stock amid Iran war
Amid the war in Iran set off by the joint U.S.-Israeli strike that took down Supreme Leader Ayatollah Khamenei, jet fuel prices in multiple parts of the world surged — in Asia, by more than 72% to $225.44 USD a barrel as Iran's closure of the Strait of Hormuz threatens the global supply chain.
European prices have also soared by more than 140% to highs unseen since 2022.
Such jumps will inevitably seep into the aviation industry. This has pushed most major airlines to hedge large percentages of their fuel needs into 2027.
"Higher fuel prices result in a material cut to our forecasts: Rothschild on American Airlines
Amid this environment, London-based investment firm Rothschild Redburn has brought down its price target for American Airlines from $17 to $12.50 USD while also downgrading its rating from Buy to Neutral. At $12.46 USD as of March 5, American Airlines stock is down by 20% since the start of 2026 and 11.57% from a year ago.
"Domestic capacity growth is now accelerating through this year, and the Iran conflict will add disruptive pressures and material fuel cost inflation," Director James Goodall said in an interview on CNBC. "Indeed, higher fuel prices result in a material cut to our forecasts and an expectation of substantial downgrades to consensus this year."
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According to his note to investors, jet fuel prices were listed as the primary reason behind the downgrade while other factors included the airline's fight with United Airlines for gate slots in Chicago's O'Hare International.
Goodall writes that American appeared to be on the right path to tackle its $36.9 billion debt burden at the start of 2026 but the breakout of military action in the Middle East risks destabilizing its financial sheets for months to come. A 10-cent move in the price of jet fuel per gallon results, according to Rothschild's estimates, to as much as 25% in American's earnings per share.
"This means we see the most downside risk to estimates"
"This along with pressures facing its network this year — overcapacity in Chicago and some Middle East exposure — means we see the most downside risk to estimates," Goodall wrote further.
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With all major airlines dependent on the price of jet fuel, other airlines will also see a rapid impact on their balance sheet that is expected to become more profound as the war continues.
Immediately after the strike on the last day of February, shares of airlines like United and Delta tumbled — in the latter's case down from $71 on Feb. 27 to $64 on March 5. Despite small rebound ebbs over the last few days, shares of all major U.S. airlines remain significantly down from a week ago.
While American is more susceptible to jet prices due to tighter margins and higher per-unit costs, the airline is likely to be a bellwether for further downgrades and earnings revisions in the coming weeks. Rothschild also predicts that American Airlines will eventually report negative earnings per share in 2026.
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