United Airlines (UAL) will report fourth quarter fiscal 2021 earnings results after the closing bell Wednesday. Amid the pandemic-induced devastation in airline travel, United has been one of the hardest-hit stocks in the transportation sector, suffering almost 20% declines in the last nine months.
The company has struggled not only through slumping booking demand, but also labor challenges and a liquidity pressure. There has also been a litany of operational pressures stemming from travel restrictions, high fuel costs and overtime staff pay. Had it not been for timely government assistance, many airlines, including United might not be around today, but investors are hoping for clearer skies in 2022.
Citing benefits from international and corporate recovery, analyst Conor Cunningham of MKM Partners listed United among the airlines that will recover this year. United plans to boost 2022 international capacity 10% above 2019 levels. Cunningham upgraded United to Buy from Neutral, calling it a "compelling cost story." Analysts forecast United Airlines returning to a profitable year in 2022 and heading to a meaningful $7.60 projected EPS in 2023. In part, this is based on the company stated plan to have all international locations to reach record travel levels by summer 2022.
It remains to be seen what (if any) impact omicron has had on the company’s capacity plans. United has struggled to deliver a profitable quarter dating back almost two years since the start of the pandemic. And each attempt has been disrupted by new strains of the coronavirus. While the stock does reflects solid near-term value, the company’s guidance on Wednesday will determine how confident the management is in these projections and whether the stock can reward investors in the next several quarters.
For the three months that ended December, analysts expect Chicago-based transportation giant to lose $2.08 per share on revenue of $7.96 billion. This compares to the year-ago quarter when the loss came to $7 per share on revenue of $3.41 billion. For the full year, the company is expected to lose $14.34 per share, improved from a year-ago of loss of $27.57, while full-year revenue of $24.4 billion would rise 58.9% year over year.
Business and international travel is expected to recover in the second half of the year, according to Moody’s, which expects global air travel to rise 60% this year from $165 billion in 2021 to $275 billion. This will benefit United Airlines which specializes in these routes. Meanwhile, analysts at MKM Partners forecast the industry to be profitable this year as capacity moderate with 2019 levels. All of this is good news for United where passenger revenue accounts for the lion's share of its total business.
In the third quarter, United reported revenues of $7.75 billion which surged 211% year over year and beating analyst estimates by $112 million. Q3 adjusted loss of $1.02 beat estimates by 66 cents. Notably, these beats were achieved even as capacity was down 28%. Revenue passenger miles was also down 37%. These numbers, though they were expected, also reflects how the management continues to make the best out of a bad situation.
The market on Wednesday will look to this metric to determine United’s path towards profitability in 2022 and what the recovery story will look like. The demand/capacity imbalance will also be one of the major metrics the market will focus on when assessing the long-term valuation of the stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio