United (UAL) up 12.8% since last earnings report: can it continue?

IIt’s been about a month since United Airlines’ (UAL) last earnings report. The shares rose about 12.8% during this period, outperforming the S&P 500.

Will the recent positive trend continue until the next earnings release, or should United back down? Before we dive into the recent reaction from investors and analysts, let’s take a look at its latest earnings report to better understand the important catalysts.

Lower than expected loss in the fourth quarter

United Airlines suffered a loss (excluding 39 cents of one-time items) of $1.60 per share in the fourth quarter of 2021, narrower than Zacks’ consensus estimate of a loss of $2.23. Operating revenue of $8,192 million also topped Zacks’ consensus estimate of $7,930.9 million. Revenue and net income improved significantly year-over-year, driven by strong holiday travel demand. The amount of losses incurred in the fourth quarter decreased by 77.1% year-on-year. It is the company’s eighth straight quarterly loss as coronavirus concerns continue to weigh on air travel demand.

Revenue jumped more than 100% year-over-year, with passenger revenue, accounting for 84% of revenue, climbing 185.4% to $6,878 million. This reflects improving air travel demand from pandemic-induced lows in 2020. The company said its bookings for spring and summer travel demand remain strong.

Nonetheless, with air travel demand remaining below pre-pandemic levels, total revenue decreased by 24.8% compared to the fourth quarter of 2019 (pre-pandemic). Passenger revenue fell 30.87% from 2019 levels, while cargo revenue jumped more than 100% to $727 million. Revenue from other sources decreased 8.1% from the fourth quarter of 2019 to $587 million.

Operating results

Below we present all the comparisons (in percentage) with the fourth quarter of 2019.

Consolidated passenger revenue per available seat mile (ASM: a key measure of unit revenue) decreased 10.2% from the 2019 level to 12.55 cents. Total revenue per available seat mile (TRASM) fell 2.5% to 14.94 cents. On a consolidated basis, the average yield per revenue passenger mile fell 3.8% to 16.30 cents.

Consolidated air traffic, measured in revenue passenger miles, fell 28.1%, while capacity, measured in available seat miles, fell 22.8%. Consolidated load factor (percentage of seat occupancy) deteriorated to 77% from 82.5% in the fourth quarter of 2019 as traffic declined more than the drop in capacity. The average aviation fuel price per gallon rose 14.8% to $2.41. Gallons of fuel consumed decreased by 24%.

Adjusted operating expenses decreased 12.4% to $6,552 million. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, third party business expenses, profit sharing and special charges, increased by 13.5%.

United Airlines ended the fourth quarter with cash and cash equivalents of $18,283 million compared to $11,269 million at the end of 2020. Long-term debt at the end of the current quarter was $30,361 million compared to 24 $836 million at the end of December 2020. the company ended the quarter with total available cash of $20 billion

Outlook

United Airlines expects 2022 capacity to decline from the 2019 level. Previously, the airline expected a 5% increase from the 2019 level. The company now expects the adjusted CASM of 2022, excluding fuel, will increase from the 2019 level. Previously, the company expected the same to decrease from the 2019 level.

United Airlines expects first-quarter 2022 capacity to decline 16-18% from first-quarter 2019. The company estimates total operating revenue will drop 20-25% in the current quarter compared to the comparable period of 2019. Adjusted CASM, excluding fuel, is expected to increase 14-15% in the first quarter compared to the 2019 level. The price of fuel per gallon is estimated to be approximately $2.51 per gallon during of the current quarter.

United Airlines plans to dismantle its 52 Pratt & Whitney-powered Boeing 777s in 2022.

How have the estimates changed since then?

Over the past month, investors have witnessed a downward trend in the revision of estimates.

The consensus estimate changed by -41.25% due to these changes.

VGM Scores

Currently, United have a growth score of less than D, although they are lagging a bit on the Momentum score front with an F. However, the title has been given a C rating on the value side. , which puts it in the middle of 20% for this investment strategy.

Overall, the title has an overall VGM score of F. If you’re not focused on a strategy, this score is the one you should be interested in.

Outlook

Estimates have trended lower overall for the stock, and the magnitude of these revisions indicate downward movement. Notably, United has a Zacks rank #3 (Hold). We expect the title to return online in the coming months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Wanda Dufresne

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