Here's Why You Should Retain United Airlines (UAL) Stock Now
United Airlines Holdings, Inc. (UAL) is benefiting from its solid cargo operations as well as buoyant air-travel demand. However, low liquidity is a headwind.
Factors Favoring UAL
Owing to buoyant air-travel demand, United Airlines posted a significant year-over-year increase (about 51.37%) in fourth-quarter 2022 revenues. The uptick was driven by a 62.9% rise in passenger revenues (accounting for 90.3% of the top line) to $11,202 million. Moreover, passenger revenues increased 12.8% from the fourth-quarter 2019 reading.
Nearly 39 million passengers traveled on UAL flights in the December quarter. Driven by solid demand, management expects total revenue per available seat mile to grow in the 22-23% band year over year for the first quarter of 2023. Total revenues are anticipated to grow almost 51% year over year.
United Airlines’ focus on its cargo operations is boosting cargo revenues, thus partly offsetting the weakness in passenger revenues from the 2019 levels. In 2021, the carrier’s cargo revenues jumped 42.5% year over year and 99.2% from the 2019 level. In 2022, cargo revenues increased 84.1% from the 2019 level. Cargo revenues skyrocketed 49.4% from fourth-quarter 2019 actuals to $472 million.
A decline in the current ratio (a measure of liquidity) does not bode well for the company. The carrier exited the fourth quarter of 2022 with a current ratio of 1.00, down from 1.03 in third-quarter 2022 and 1.04 in second-quarter 2022. A reduction in this key ratio generally implies that the company's ability to generate cash is on the decline.
Zacks Rank & Key Picks
United Airlines currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL) and Alaska Air Group, Inc. (ALK).
American Airlines, currently carrying a Zacks Rank #2 (Buy), is benefiting from the improved air-travel-demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%.
For first-quarter and full-year 2023, AAL’s earnings are expected to register 100.4% and 332% growth, respectively, on a year-over-year basis.
Alaska Air, carrying a Zacks Rank #2 at present, is seeing continued improvement in air-travel demand. On the back of upbeat air-travel demand and favorable pricing, Alaska Air reported better-than-expected earnings per share for fourth-quarter 2022. ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals.
For first-quarter and full-year 2023, ALK’s earnings are expected to register 69.9% and 31.7% growth, respectively, on a year-over-year basis.
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