Investors seeking to establish meaningful stock positions in valuable companies may be considering American Airlines AAL and Ford Motor F after exceeding their Q3 expectations last Thursday.
Of course, the backdrop to why American Airlines and Ford stock could be enticing after their favorable Q3 results is that both are still trading under $15 a share.
With their “cheap” stock prices reflecting perceived discounts to other major airliners and automakers, let’s see which may be the better investment, or if they are presenting the remnants of a value trap.
American Airlines’ Narrower Q3 Loss & Improved Outlook
Although rising fuel prices and labor costs have weighed on American Airlines’ profitability, Q3 net income came in at a narrower-than-expected loss of $114 million or -$0.17 a share compared to expectations of -$0.27 per share.
Delivering on a projection that Q3 would mark a turnaround, American Airlines’ operating income surged 70% year over year to $151 million. Furthermore, Q3 sales of $13.69 billion topped estimates of $13.62 billion and were pleasantly up from $13.64 billion in the comparative quarter.
American Airlines also raised its full-year guidance, reflecting confidence in a continued recovery, strong cost management, and stable travel demand despite industry and tariff-related headwinds. Notably, American Airlines now expects full-year adjusted EPS between $0.65-$0.95, which came in well above expectations of $0.33 per share. Additionally, American Airlines projects its full-year free cash flow will now exceed $1 billion.
Ford Motors’ Record Q3 Revenue but Lowered Guidance
Overcoming $700 million in tariff costs and a fire at a key supplier’s (Novelis) aluminum plant, Ford went on to post record Q3 sales of $47.18 billion. Thanks to strong demand across its vehicle lineup, particularly in trucks and SUVs, including electrified models, Ford’s top line stretched over 9% from $43.06 billion a year ago and impressively surpassed estimates of $42.65 billion by 10%.
Ford’s EPS of $0.45 dipped from $0.49 in the prior year quarter, but this was attributed to a higher share count, as net income of $2.4 billion was up from $1.6 billion in Q3 2024. Plus, Ford comfortably exceeded Q3 EPS expectations of $0.38.
However, the recent disruption at the Novelis aluminum plant led to Ford lowering its full-year guidance amid reduced production of its high-margin trucks like the F-150. As a result, Ford cut its full-year adjusted EBIT guidance to $6-$6.5 billion from a previous range of $10-$10.5 billion. Ford also trimmed its free cash flow forecast from $6 billion to a range of $2-$3 billion.
Performance & Valuation Comparison
Ironically, American Airlines’ stock is down over 20% in 2025, stemming from previous fears of a continued decline in its outlook. Meanwhile, Ford shares are still up over +30% YTD, driven by improved operational efficiencies and expanded margins.
Taking a longer view, Ford stock is sitting on gains of +70% in the last five years, which has topped American Airlines’ +20% although both have lagged the benchmark S&P 500’s return of more than +100%.
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At current levels, American Airlines and Ford stock trade well under the preferred level of less than 2X forward sales, and have the robust top lines that echo their valuations are overlooked in this regard.
Ford’s 12X forward earnings multiple also stands out at a slight discount to its auto peers and is well below the benchmark’s 26X. American Airlines, on the other hand, trades at 41X forward earnings, an elevated premium to the broader market and its Zacks Transportation-Airline Industry average of 10X. Still, American Airlines’ raised EPS guidance should start to rectify its inflated P/E valuation.
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Conclusion & Strategic Thoughts
Ford’s price performance has shown why it has been beneficial to add positions, especially on the dip, considering the automaker’s valuation is still attractive. As for American Airlines, it could start to shake off the notion that AAL has had some remnants of a value trap in recent years.
Given their guidance, it wouldn’t be surprising if American Airlines’ stock starts to outperform going forward, and Ford shares begin to lose steam. That said, Ford is currently offering a generous 4.34% annual dividend yield to reward patient investors, while American Airlines doesn’t offer a payout.
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This article originally published on Zacks Investment Research (zacks.com).