Here's Why Investors Should Retain United Airlines (UAL) Now
United Airlines Holdings, Inc. UAL is benefiting from air-travel demand and improved outlook. However, low liquidity is worrisome.
Factors Favoring UAL
Owing to buoyant air-travel demand, United Airlines posted a significant year-over-year increase (17.1%) in second-quarter 2023 revenues. This was driven by a 20.1% rise in passenger revenues (accounting for 91.7% of the top line).
Due to robust air-travel demand, UAL expects revenues for the September quarter to grow 10-13% year over year. For third-quarter 2023, United Airlines expects capacity to improve 16% from the year-ago reported figure.
Driven by the rosy air-travel-demand scenario, UAL projects third-quarter earnings per share in the $3.85-$4.35 band. Management has lifted its EPS forecast for 2023 to $11-12 (prior view: $10-$12).
In a bid to modernize its fleet, the carrier placed the largest 787 Dreamliner order to Boeing in December 2022. UAL will purchase 100 Boeing 787 Dreamliners, with options to buy 100 more. It anticipates getting delivery of this new widebody planes between 2024 and 2032. The new jets are expected to result in 25% improvement pertaining to fuel usage compared with the older Boeing 767 widebodies and some 777s that will be replaced.
Key Risks
The decline in current ratio (a measure of liquidity) does not bode well for the company. The carrier exited the second-quarter of 2023 with a current ratio of 0.91, down from the reading of 1 in fourth-quarter 2022. Reduction in this key ratio generally implies that the company's ability to generate cash is on the decline.
Zacks Rank
UAL currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are FedEx Corporation FDX and Ryder System R.
FDX’s consistent efforts to reward shareholders through dividends and buybacks are encouraging. It presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FedEx's liquidity position is also impressive. To navigate the weaker-than-expected business environment, FDX is cutting costs.
Ryder, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Despite weak market conditions, Ryder reported better-than-expected earnings in second-quarter 2023. In fact, the company has an impressive earnings surprise history. R has surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark once), the average beat being 11.2%.
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United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
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FedEx Corporation (FDX) : Free Stock Analysis Report
