Since early February, United Airlines (NASDAQ:UAL) has been in rally mode. It’s all about the so-called “reopening” trade and it is having a widespread impact across the whole sector, as seen with companies like American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV). As for UAL stock, the shares are up about 24% year-to-date (YTD) and the market capitalization is $17.1 billion.
Of course, there has been a notable improvement with the spread and impact of the Covid-19 pandemic. It’s not necessarily clear why this is the case. It could be that levels of immunity are becoming higher and the vaccines are starting to have a positive impact. But regardless, the trends are certainly encouraging.
So, can UAL stock keep up the momentum? Or is it time to take profits? Well, I actually think the bull case remains intact. Here’s why.
UAL Stock: The Positives
The last time United Airlines reported its earnings — which was on Jan. 20 — the situation did look dire. For example, the company reported a net loss of $1.9 billion in the fourth quarter, compared to a profit of $641 million in the same period a year ago (Page 9). For the whole year, the losses came to a terrible $7.1 billion.
But despite all this, there were still some encouraging signs. The company was able to continue to make progress with reducing the costs, for instance. In Q4, the burn rate was $19 million a day, which was $5 million lower than the prior quarter.
United has also been able to bolster its balance sheet, which bodes well for UAL stock. Note that the liquidity reached about $19.7 billion in the quarter. Part of this was due to the fact the company did not have to withdraw certain government funds.
According to CEO Scott Kirby, in the earnings press release: “Aggressively managing the challenges of 2020 depended on our innovation and fast-paced decision making. But, the truth is that COVID-19 has changed United Airlines forever.”
In other words, UAL is a much stronger company now.
Demand for Travel
On top of this, there also appears to be significant pent-up demand for travel. That demand should help raise UAL stock.
“People want to travel. Everybody’s just anxious to get their lives back the way it used to be. So I would say go out there, look at [prices] now, if you have to cancel, you cancel […] I do see prices going up in some places and certainly we’ve seen some airfares going up to for the summer.”
For the most part, it also seems like the vaccine rollout is progressing nicely. A key has been the introduction of Johnson & Johnson’s (NYSE:JNJ) new vaccine offering, which should make a big difference.
Finally, the passage of the fiscal stimulus bill should be another strong catalyst. In the coming weeks, the U.S. Treasury will be sending out $1,400 checks to millions of America. Thus, there should be enough financial firepower for people to ramp up their travels plans.
Bottom Line on UAL
Now, there are certainly risks with UAL stock. For example, there are various Covid-19 mutations that have emerged which could reverse some of the progress we’ve made. But, then again, it does look like the vaccines have been quite robust.
Next, business travel will likely remain subdued. In part, that’s because businesses have learned to use video-conferencing for sales and conferences after a year of Covid-19. Such approaches may take some time to change.
But for Wall Street, there appears to be a change of focus. There has been a rotation from high-growth stocks — especially in the tech sector — to those companies that should benefit from a post-pandemic reopening of the economy. UAL stock fits that bill — it’s a name that should continue to be top-of-mind for investors.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.