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Big Q2 Beat in Store for United Airlines Stock

Josh Enomoto

In many cases, earnings season for airliners is a straightforward affair. If the economy is doing well, more people are motivated to travel, while the opposite is also true. However, with United Airlines (NASDAQ:UAL) set to release its second quarter 2019 results, everyone has the same question: how will Boeing’s (NYSE:BA) 737 Max jetliner impact United Airlines stock?

It’s a line of thinking that no prospective buyer should ignore. Although UAL stock is on the verge of breaking into double-digit returns for the year, shares have disappointed over the trailing 52-week period. After all, the broader benchmark Dow Jones Industrial Average is up over 17% during the same timeframe.

Plus, United stock has merely bounced up and down a sideways consolidation pattern since September of last year. Thus, for UAL earnings, investors will be looking for signs that lean shares in one direction or the other.

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Fortunately for investors interested in the friendly skies, United Airlines stock should perform admirably. That’s because competitor Delta Air Lines (NYSE:DAL) laid down the blueprint for the rest of the sector.

Delta Delivers Big Beat, Boding Well for UAL Stock

On Thursday morning before the opening bell, Delta released its Q2 earnings report. For anyone bullish on DAL, it was exactly what they wanted to hear. But the news is especially pertinent for stakeholders of UAL stock for obvious and not-so-obvious reasons.

Against a Wall Street consensus target calling for earnings per share of $2.27, Delta reported $2.35. On the revenue front, the airliner rang up $12.49 billion, matching the consensus estimate. That tally also represented a new quarterly record.

Keep in mind that Delta produced record revenues in the Q1 report as well. Thus, the news gets better by association for United Airlines stock, and the upcoming UAL earnings.

Not only that, Delta is somewhat similar to UAL relative to the Boeing 737 Max crisis. Part of the reason why Delta performed so well in Q2 was that it doesn’t have any 737 Max planes; thus, it didn’t cancel any flights. Although United can’t say the same, it only has nine 737 Max 9-series planes, not the 8-series that was involved in two high-profile tragedies.

Other airliners, such as Southwest Airlines (NYSE:LUV) and American Airlines (NASDAQ:AAL), own considerably more of the maligned jet. Therefore, I expect United Airlines stock to perform reasonably well following the UAL earnings: it’s simply not as levered to the 737-related crisis.


Record Air Travel and Upcoming UAL Earnings Report

The Street has some ambitious targets for UAL stock for Q2. On the profitability front, analysts estimate EPS to come in at $4.08. In the year-ago quarter, United brought in EPS of $3.23.

For revenue, analysts anticipate United to ring up $10.45 billion. In Q2 2018, the company delivered just under $9.9 billion.

Again, this is a sizable step up from just a year ago amid a complicated economic picture. But what’s not complicated is demand. According to travel experts, airliners will enjoy an influx of passengers, even more so than last year’s peak summer season.

Specifically, forecasts call for over 257 million people to traverse American airspace between June 1 and August 31. If so, this would represent a 3.4% lift from the same period in 2018. Naturally, such robust demand plays into United Airlines stock.

Sure, most of the aforementioned timeframe doesn’t cover Q2. However, from Delta’s Q1 earnings report, we know that this uptick in passenger volume is no fluke. It has been building for some time. Thus, UAL stock should see some uptick associated with steadily rising demand.

Moreover, other indicators confirm Americans want to travel. Recently, we witnessed a record surge in road-going traffic for the Memorial Day and Independence Day holidays. And fuel prices have declined noticeably from the same time one year ago: this adds more funds to travelers’ pockets, and pads the bottom line for United stock.

One Cautionary Note on United Airlines Stock

Based on the broader fundamental factors affecting the airliner industry, I’m almost certain that United will produce a solid beat. And yes, that would imply that United Airlines stock ticks higher.

However, I’d also take a conservative approach here. At the end of the day, the demand surge within this industry comes from a robust labor market. But that’s not guaranteed to sustain itself, especially with geopolitical uncertainties and the U.S.-China trade war.

Typically, the markets don’t like ambiguous signals, especially large-scale ones like what we’re seeing. So my idea is this: if you like United stock, take a modest position now. But be prepared to react if economic metrics start souring.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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