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United (UAL) Up 12.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for United Airlines (UAL - Free Report) . Shares have added about 12.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is United due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Narrower-Than-Expected Loss in Q4

United Airlines incurred a loss (excluding 39 cents from non-recurring items) of $1.60 per share in the fourth quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of $2.23. Operating revenues of $8,192 million also outperformed the Zacks Consensus Estimate of $7,930.9 million. Both the top and bottom lines improved significantly year over year, thanks to strong holiday travel demand. The amount of loss incurred in the fourth quarter narrowed by 77.1% year over year. This is the eighth consecutive quarterly loss incurred by the company as coronavirus concerns continue to weigh on air-travel demand.

The top line surged more than 100% year over year, with passenger revenues, accounting for 84% of the top line, soaring 185.4% to $6,878 million. This reflects the improvement in air-travel demand from the pandemic-induced lows in 2020. The company said that its bookings for spring and summer travel demand remain strong.

Nevertheless, with air-travel demand continuing to be below the pre-pandemic levels, total revenues declined 24.8% from the fourth quarter of 2019 (pre-pandemic). Passenger revenues dropped 30.87% from the 2019 level, while cargo revenues jumped more than 100% to $727 million. Revenues from other sources decreased 8.1% from the fourth quarter of 2019 to $587 million.

Operating Results

Below we present all comparisons (in % terms) with fourth-quarter 2019.

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

Consolidated airline traffic, measured in revenue passenger miles, fell 28.1%, while capacity, measured in available seat miles, decreased 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. Average aircraft fuel price per gallon increased 14.8% to $2.41. Fuel gallons consumed were down 24%.

Adjusted operating expenses fell 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, ascended 13.5%.

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

Outlook

United Airlines expects 2022 capacity to decline compared with the 2019 level. Previously, the airline expected the same to increase 5% from the 2019 level. The company now forecasts 2022 adjusted CASM, excluding fuel, to increase from the 2019 level. Previously, the company anticipated the same to decline from the 2019 level.

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

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

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -41.25% due to these changes.

VGM Scores

Currently, United has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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