United Airlines Is Still a Great Deep-Value Play After a Post-Earnings Pop


UAL stock - United Airlines Is Still a Great Deep-Value Play After a Post-Earnings Pop

Source: travelview / Shutterstock.com

United Airlines (NASDAQ:UAL) investors are rejoicing after the company released its latest earnings report. What excites investors the most is that the legacy carrier expects to return to profitability in the second quarter. In response, UAL stock rose handsomely in after-hours trading.

It marks another shift in favor of the airline industry after a harrowing few years of the pandemic. The company’s adjusted loss per share was wider than analysts had expected. However, it was significantly better than the adjusted loss per share of $7.50 reported in the prior-year period.

United Airlines’ revenue missed expectations but is up 134.9% YOY. This means its business has been thriving despite Covid-19, although it has not yet reached the levels before the pandemic.

A key determinant of an airline’s financial performance is the load factor, which indicates how full the airline’s planes are. United Airlines’ load factor came in at 72.6%, which was below analyst expectations, but significantly higher than last year’s level of 56.8%.

Airlines have different load factors depending on the time of travel. The load factor is calculated from how many seats on an aircraft are taken by paid passengers and how many remain empty, or occupied but not filled.

The cost of adding or subtracting people on an aircraft is very low. So, airlines increase their chance at revenue by filling as many seats as possible and then rolling with the changes in total capacity. Having a higher load factor means a company is covering the fixed cost of its business. This means a greater profit.

The company expects to return to profitability in the second quarter, and it is also expecting the second strongest second quarter of revenue in its history.

Airline stocks suffered massive drops in market value during the pandemic. It led to the most famous investor of all time, Warren Buffet, exiting airline stocks completely. However, now it seems that the worst is behind these companies.

UAL stock has laid out an aggressive growth plan for success from the pandemic. The company projects capital expenditures for this year at $5.9 billion. That includes projects in the pipeline scheduled to be completed last year, but expected to conclude in 2022. Capex is forecast to increase to $8.5 billion in 2023 and then decrease slightly, reaching $6 billion in 2024.

After a global pandemic, United is looking to invest in its operations and regain the trust of its shareholders. This situation requires them to be very aggressive in handling their funds and ensuring they are productive again. This quarter’s results were less impressive than analysts had predicted, but they still emphasized the progress in UAL stock.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/united-airlines-is-still-a-great-deep-value-play-after-a-post-earnings-pop/.

©2023 InvestorPlace Media, LLC