#American Airlines shares soar after mention in Reddit forum

Shares of American Airlines soared early Thursday after a mention on Reddit’s WallStreetBets forum, where rookie investors have been pumping up stocks of struggling companies at the expense of big Wall Street firms.

“AAL the next GME?” Reddit user u/cardiffgiantthe1st wrote in the chat forum late Wednesday, using the ticker symbols American and GameStop, the struggling video-game retailer whose shares have staged a phenomenal rally this week.

American’s stock was recently up 50 percent from the previous day’s close at $24.78 in pre-market trading on Thursday.

That’s despite the fact that American Airlines executives on Thursday gave a cautious financial outlook, forecasting revenues to plummet 60 percent in the current quarter as the coronavirus pandemic continues to devastate the travel industry worldwide.

“2021 will be a year of recovery,” Chief Executive Doug Parker said Thursday, adding, “We don’t know exactly when passenger demand will return.”

The dramatic stock pop isn’t “fundamentally driven, as American’s outlook is similar to others we have heard during this earnings cycle,” Helane Becker, an analyst at Cowen & Co., said in a note to clients. “The near-term outlook remains challenging and timing of any improvement is still uncertain.”

Analysts likewise said a recent runup in shares of Virgin Galactic looked unjustified.

About 29 percent of American’s outstanding shares have been sold short — a big number that makes the stock vulnerable to big pops, according to S3 partners, a financial-data firm. The rest of US airlines have short interest of less than 5 percent.

Short interest as a percentage of American’s free float is about 29 percent, according to data from S3 Partners.

In response to American’s Thursday spike, CFRA Research lifted its recommendation on the shares to “hold” from “strong sell” and raised its price target to $19 from $8.

“We think the stock is a high risk for one of the recent retail-investor-driven short squeezes we’ve seen play out,” CFRA analyst Colin Scarola wrote to clients.

The firm also raised Spirit Airlines from “sell” to “hold,” citing the short squeeze. Short interest is about 16 percent of Spirit’s float, according to Vertical Research, Bloomberg reported.