United Airlines Expects Higher 4Q Cash Burn As COVID-19 Spike Hurts Travel

United Airlines predicts increased cash burn in the fourth quarter as a rise in COVID-19 cases continues to impact travel demand.

The carrier now expects 4Q cash burn of about $24 million-$26 million, plus $10 million of average debt principal payments and severance payments per day. United Airlines (UAL) had earlier predicted 4Q cash burn of $15 million-$20 million, plus $10 million of severance and debt principal payments. It cited continued deceleration in bookings and a change in working capital due to a shift in the timing of certain payments and receipts between quarters as reasons for the revised cash burn guidance.

Furthermore, the carrier expects 4Q revenue to decline by about 70% year-over-year. United Airlines stated it does not expect demand recovery to follow a linear path. That said, it added that recent favorable developments in COVID-19 vaccines show “an encouraging line of sight to the other side of the pandemic,” with current bookings for 3Q21 down about 40% compared to a decline of 70% in December 2020 and January 2021 travel. (See UAL stock analysis on TipRanks)

“While it will take time for the vaccine to be widely distributed, the Company’s confidence is even stronger in the recovery and the trajectory of the rebound in 2021 and beyond,” the company stated in an SEC filing.

Last week, Deutsche Bank analyst Michael Linenberg downgraded United Airlines to Hold from Buy but increased the price target to $56 from $54. Linenberg feels that airline stocks are fairly valued following the recent rally triggered by positive developments on the COVID front. He noted that the stocks are at or near fair value based on 2022 valuations, suggesting that investors have already paid for two years of earnings growth. However, Linenberg continues to maintain a bullish long-term stance on the sector.

Overall, the Street is sidelined on United Airlines, with the Hold analyst consensus based on 5 Buys, 5 Holds and 3 Sells. The average price target stands at $46.70, reflecting a possible downside of 3.4% in the months ahead. Shares have already declined 45.1% so far this year.

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