Airline flight schedules have been severely reduced by the pandemic, but that hasn’t stopped shares of airline stocks flying high and diving low recently. The sector is experiencing extreme bouts of volatility, with sharp drops followed by spiking ascents.
United Airlines (UAL) has been an active participant in the shenanigans, too. Over the past month, as the industry has benefitted from the hope normality will resume soon, UAL shares have popped by a massive 40%. Yet, it is worth noting that even after the rally, the stock is still down year-to-date by a crushing 55%.
Credit Suisse analyst Jose Calado argues that following the surge, now might be the time for investors to move to the sidelines. The analyst rates UAL a Neutral (i.e. Hold) along with a $41 price target. (To watch Calado’s track record, click here)
Explaining his reasoning, Calado said, “UAL remains a well-run carrier which continues to display a proactive approach to crisis management and is making good progress on cost reduction. Our downgrade merely reflects the fact that UAL briefly overshot our target price last week following the recent sector rally, and while it has since settled in just below our TP, we still take this opportunity to step to the sidelines with a Neutral rating. We believe the recent rally off the bottom is an opportunity for investors to prudently reduce their exposure to the network carriers…”
It might be a while before normality fully kicks in again, although progress is being made. UAL’s target of bringing its flight schedule up to 30% capacity in July is an increase over the 10% of flights in May. The target, though, is more conservative than that of American Airlines (AAL), which is looking for a ~40% schedule, including a 55% domestic schedule. Calado believes this is down to the carriers’ “different hub structures,” with AAL’s concentrated in Texas and North Carolina compared to UAL’s New York and California based centers. Additionally, the lower number of flights could also reflect on UAL’s more cautious approach, and resembles the one taken by Delta Air Lines (DAL), which also expects a 25-30% schedule for July.
The rest of the Street backs up Calado’s thesis. 3 buys, 5 Holds and 1 Sell add up to a Hold consensus rating. The average price target hits $40.5 and implies possible downside to the tune of 2.5%. (See UAL stock analysis on TipRanks)
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