United Airlines Is a Buy at These Levels, Says Analyst

Any way you look at it, it’s no fun being an airline in 2020. United Airlines Holdings (UAL) reported third quarter earnings last week, and surprising nobody, the results were pretty bleak.

Revenue came in at $2.49 billion, a year-over-year decline of 78.1% and missing the estimates by $50 million. Non-GAAP EPS of -$8.16 also came in below the Street’s forecast by $0.61.

On the plus side, due to aggressive cost cutting, the company managed to meet its Q3 $25 million daily cash burn target, improving by 38% on the June quarter’s $40 million a day leak.

Looking ahead, management said demand is steadily improving and expects a 10-point sequential increase in demand for the December quarter. Still, as expected, the demand is significantly lower than last year’s, and UAL plans to run at capacity levels 55% below 4Q19.The company currently anticipates a 67% year-over-year revenue drop in Q4.

United saw out Q3 with $19.4 billion in total available liquidity (not taking into consideration the $2.3 billion UAL is hoping to secure under the CARES Act Loan Program). The figure is above the initial target of boosting liquidity to $18 billion by the end of the quarter and more than the $15.2 billion it had on July 20, when it announced Q2 results.

For Deutsche Bank analyst Michael Linenberg, the “cash burn and liquidity metrics continue to show signs of improvement.” While the analyst believes the company is “starting to see the light at the end of a very long tunnel,” the current macro conditions make it difficult to predict UAL’s trajectory.

“We are widening our full year loss per share from $25.00 to $26.65 due to a Sep Q loss that was 11% wider than our forecast (we readily admit that forecasting airline results during a global pandemic is one of the more challenging tasks we’ve dealt with as a sell-side analyst) and to reflect higher interest expense in the Dec Q. We are modeling United’s cash burn to average $18 million for the quarter or 15% better than what it was in the September quarter,” Linenberg commented.

Despite the results, Linenberg remains “constructive on the name” and reiterated a Buy rating on UAL shares, along with a $54 price target. This figure implies a 58%. (To watch Linenberg’s track record, click here)

All in all, when considering UAL’s prospects, the rest of the analyst community’s views are a mixed bag. Based on 5 Buys, 6 Holds and 1 Sell, the stock qualifies with a Moderate Buy consensus rating. With an average price target of $42.71, the Street anticipates upside of 20% in the year ahead. (See UAL stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.