United Airlines Holdings Inc (NASDAQ:UAL)
The projection that United Airlines provided for the remainder of 2023 was positive enough to justify a sizeable increase in the price of the stock. It would appear that Wall Street has some reservations.
When it disclosed earnings late Tuesday night, the airline (NASDAQ:UAL) did not deviate from its previous projection that the profit for the full year will be between $10 and $12 per share. This is the same call that it issued before to give a warning about its first-quarter profits a month ago, which implies that the airline expects a bountiful three quarters ahead of them.
Wall Street is not entirely persuaded. The majority of the analysts whose forecasts FactSet considers are in agreement that the EPS for the whole year will be $8.56.
“The street has been dismissive of United’s earnings power this year,” said Christopher Raite, an analyst at Third Bridge. “By reiterating the guidance, United is implying that it will achieve an even more successful result over the course of the final three quarters of 2023.”
It would suggest that investors are becoming more comfortable with the guidance. Following a decline in premarket trade, the share price increased by almost 3 percent early on Wednesday. Nevertheless, it is still over 8% lower than where it was when United stunned investors with the news that it predicted a first-quarter loss a little over a month ago. The price of the shares is currently up 19% for the year 2023.
The company stated that it anticipated a loss of between 60 cents and $1 per share, but it actually turned in a loss of 63 cents. This indicates that the company had a stronger conclusion to the month of March, which may be an encouraging indication of demand. A loss of 73 cents per share was the prediction that was reached by the majority of analysts.
United’s upbeat outlook for the months ahead is supported by the fact that there is a strong demand for travel, particularly in international markets. The Chief Executive Officer, Scott Kirby, issued the following statement: “We are watching the macroeconomic risks carefully, but demand is still strong, especially internationally, where we are growing at twice the rate of the domestic rate.”
It’s possible that investors and Wall Street are concentrating on the first half of Kirby’s remark, which is about macroeconomic concerns. During the quarterly earnings call for the company, Kirby stated that the economic risks are currently larger than they were a few months ago.
He stated that as a result of the turbulence in the financial industry that occurred last month, United had an “immediate” decline in demand for business flights that were booked with short notice. This decline persisted for around two weeks.
The demand from domestic businesses was hurt the hardest, followed by the demand from domestic leisure activities, while the effect was modest worldwide. Kirby’s comments serve as a timely reminder of how rapidly circumstances can shift despite the fact that the trend has already been reversed and demand has returned to its pre-recession levels.
What we are seeing right now serves as the basis for our guidance, which is our base case scenario. And what we are witnessing right now is a robust demand for our products,” added Kirby. After shifting more toward products during the epidemic, he believes that consumers are “re-balancing back to services” in their expenditure.
The chief executive officer also brought up a change in seasonal demand, which he stated he anticipates will continue throughout the course of the long run. According to Kirby, the months of March through October, which are normally the busiest for leisure travel, are projected to have higher demand than in the past, while months such as January and February, which are typically more dependent on business travel, will have lower demand.
There are some individuals who do not question the outlook of the airline. The analysts at TD Cowen believe that United will meet its full-year earnings target. They are projecting earnings per share of $10.90 and noting that revenue growth, particularly overseas, is continuing to be robust.
Analysts under the direction of Helane Becker said, “We remind investors that a year ago, the United States government required testing in order to enter the country.” “As a direct consequence of this, many customers chose not to travel abroad for the third summer in a row.”
She went on to say that as a result of the reopening of international markets earlier this summer, there is now pent-up demand. “Airfares are higher than they were this time last year, and as a result, we anticipate having either record or near-record results for the second and third quarters.”
Featured Image: Unsplash @ Miguel Ángel Sanz
