Why Is United (UAL) Up 3% Since Last Earnings Report?

A month has gone by since the last earnings report for United Airlines (UAL). Shares have added about 3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is United due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at United Airlines in Q3

United Airlines' third-quarter 2019 earnings (excluding 8 cents from non-recurring items) of $4.07 per share surpassed the Zacks Consensus Estimate of $3.94. Moreover, the bottom line improved 33% year over year, mainly on lower fuel costs.

Operating revenues of $11,380 million increased 3.4% year over year, it missed the Zacks Consensus Estimate of $11428.2 million. Higher passenger revenues contributed to the year over year improvement in top line.

Passenger revenues, accounting for bulk (92.1%) of the top line, rose 3.6% year over year. However, cargo revenues representing 2.5% of the top line declined 4.7%. Revenues from other sources contributed to the remainder.

Operating Results

Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) inched up 1.7% year over year to 13.96 cents. Total revenue per available seat mile increased 1.5% year over year to 15.16 cents. On a consolidated basis, average yield per revenue passenger mile ascended 1.6% from the year-ago quarter.

Consolidated airline traffic — measured in revenue passenger miles — climbed 1.9% year over year. Capacity (or available seat miles) also expanded 1.9%. Consolidated load factor (percentage of seat occupancy) improved 10 basis points to 86.1% as traffic growth outweighed capacity expansion. Meanwhile, average fuel price per gallon (on a consolidated basis) decreased 12.9% year over year to $2.02.

Total adjusted operating expenses increased 4.1% year over year to $7,361 million in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, third-party business expenses, profit sharing and special charges was up 2.1% year over year. However, total unit costs slipped 0.9% year over year.

United Airlines exited the third quarter with cash and cash equivalents of $2,959 million compared with $1,694 million at 2018 end. Long-term debt at the end of the reported quarter was $12,900 million compared with $12,215 million at the end of last year. Furthermore, the carrier bought back $363 million shares in the July-September period on average price of $88.22 per share.

Q4 Outlook

Capacity is estimated to expand approximately 3% year over year. Adjusted pre-tax margin is predicted in the range of 7-9%. Meanwhile, PRASM is forecast to either remain flat year over year or increase up to 2%. Adjusted non-fuel unit costs are predicted to rise nearly 3.5%. Average fuel price per gallon is estimated in the band of $1.99-$ 2.09. Additionally, effective income tax rate is anticipated between 22% and 24%.

Full-Year Outlook

The carrier now anticipates 2019 adjusted earnings between $11.25 and $12.25 compared with $10.5-$12 expected previously. Capacity is estimated to increase approximately 3.5% year over year in 2019. Adjusted non-fuel unit costs are envisioned to inch up nearly 1.2%. Additionally, effective income tax rate is anticipated between 22% and 24%. Adjusted capital expenditures are expected to be approximately $4.9 billion in the current year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, United has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise United has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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