United was the worst-performing airline stock in 2020, falling 51%.
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United Airlines Holdings is scheduled to report fourth-quarter results on Wednesday after the market closes. The carrier is expected to report another quarter of heavy losses, but even if results miss forecasts, the stock could still pop, following the pattern of Delta Air Lines after its earnings report last week.
Analysts expect United (ticker: UAL) to report revenues down 68% to $3.4 billion, compared with a year ago, resulting in a pretax loss of $2.5 billion, or $6.66 in adjusted earnings per share.
One reason the stock could do well is that expectations are low, partly because United itself lowered the bar last month. “We just don’t see anything in the data that shows a huge difference in bookings over the next few months,” CEO Scott Kirby and President Brett Hart told employees on Dec. 21. The executives said the airline planned to bring back furloughed workers—thanks to an estimated $2.7 billion in government grants and loans that were in the latest stimulus package. But the employment is likely to be temporary without a sustained recovery, they warned.
Yet even if the full-service carrier misses estimates and issues a weak forecast, the stock may react favorably.
Indeed, Delta (DAL) stock got a lift after it missed fourth-quarter estimates and issued a forecast below Wall Street targets for the first quarter. Investors may have been encouraged that Delta stuck to its forecast of turning cash-flow positive in the spring. And Delta’s nonfuel operating-cost outlook was impressive, according to Raymond James analyst Savanthi Syth.
Citigroup analyst Stephen Tren maintained his Buy rating on Delta stock this week. The airline “remains well positioned to benefit from the recovery in air travel demand that should begin post-vaccine in mid-2021,” he wrote in a note on Monday, reiterating his $48 target.
The key for United, as it is for Delta, will be business and international demand. Neither of those segments are looking up now as vaccines roll out slowly and the pandemic appears out of control in the U.S.
Ongoing border closures, travel restrictions, and lack of harmony in testing procedures and government travel rules may also hinder bookings.
The U.S. recently imposed rules requiring negative coronavirus tests for all international travelers starting on Jan. 26, according to orders issued by the Centers for Disease Control and Prevention. And the incoming Biden administration plans to immediately reverse a recent order to lift travel bans by the Trump administration on much of Europe and Brazil that would have commenced next week.
Investors and analysts expect air traffic to recover rapidly once vaccines are doled out worldwide. Initiatives are under way to create digital vaccination passports to allow for smoother travel throughout Europe, for instance. Leisure travel is expected to surge with widespread vaccinations. And surveys of business travelers indicate there is considerable pent-up demand.
But all that is likely months away.
United was the worst-performing airline stock in 2020, falling 51%. It’s up 2.9% this year and has a long flight path to recoup its lost value. Shares were up 1.4%, at $44.49, in recent trading. The S&P 500 was up 0.4%.
Write to Daren Fonda at [email protected]
