The airline industry has been hit hard by COVID-19. Border closures and shelter in place measures brought the industry to a standstill during the virus’ initial wave, as air traffic was grounded across the globe.
Whether the pandemic has peaked or not, United Airlines (UAL) upcoming flight schedule acknowledges normality is still a way off. Air travel volume remains weak and currently United’s cash burn rate amounts to roughly $40 million a week. As a result, United has issued warnings that almost half of its workforce might be furloughed in the fall.
Further keeping air travel rates down are recent measures by New York, New Jersey, and Connecticut which require any travelers from states with COVID-19 test rates above 10% to self-quarantine for two weeks. The measures have resulted in a slew of discount offers from United.
However, recent United data shows the promise of low prices is not enough to entice the public while the risk of quarantine still looms.
As a result, United’s August schedule is expected to drop by 65% compared to last year’s capacity. This is lower than the expected 60% drop United were anticipating only a week ago.
Still, the latest figures are an improvement on June and July’s numbers, which were down year-over-year by 88% and 75%, respectively. United have said the rest of 2020’s schedule will probably resemble that of August’s.
What this means to Deutsche Bank analyst Michael Linenberg, is that more uncertainty lies ahead.
The 5-star analyst said, “The bottom line is that, although we believe the industry is exhibiting signs of a nascent recovery, investors should be prepared for an unpredictable (and at times erratic) rate of improvement until either the federal government coordinates interstate quarantines and/or an effective therapeutic/vaccine becomes widely available.”
Nevertheless, Linenberg keeps a Buy rating on UAL, along with a $54 price target. The implication for investors? Potential upside of a hefty 65%. (To watch Linenberg’s track record, click here)
Overall, Wall Street almost evenly split between the bulls and those choosing to play it safe. Based on 13 analysts tracked in the last 3 months, 6 rate UAL a Buy, 6 say Hold, while only 1 recommends Sell. Notably, the 12-month average price target stands at $42.82, marking a nearly 31% in return potential for the stock. In other words, even the analysts that are hedging their bets have some healthy optimism reflected in expectations.(See UAL stock-price forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.