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Category: Stock Market and United Airlines
Date: 16 June 2020 Stock Price: $40.88 We take a look at the 1st quarter earnings report of their 2020 fiscal year of United Airlines, a global airline company that has over 4900 flights departing flights on a daily basis to 358 different airports across 5 continents. The group as all other airlines has been hit hard by the Covid-19 pandemic.
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About United Airlines
United's shared purpose is "Connecting People. Uniting the World." We are more focused than ever on our commitment to customers through a series of innovations and improvements designed to help build a great experience: Every customer. Every flight. Every day. Together, United Airlines and United Express operate approximately 4,900 flights a day to 358 airports across five continents. In 2018, United and United Express operated more than 1.7 million flights carrying more than 158 million customers. United is proud to have the world's most comprehensive route network, including U.S. mainland hubs in Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco and Washington, D.C. United operates 788 mainline aircraft and the airline's United Express carriers operate 560 regional aircraft. United is a founding member of Star Alliance, which provides service to 195 countries via 26 member airlines. For more information, visit united.com, follow @United on Twitter and Instagram or connect on Facebook. The common stock of United's parent, United Airlines Holdings, Inc., is traded on the Nasdaq under the symbol "UAL"
Overview of United Airlines' 1st quarter 2020 earnings report
Data below is reported for the latest quarter unless stated otherwise
- Revenue: $7.979 billion (up from $9.589 billion for the same quarter of the previous year)
- Revenue decreased by -16.8% over the last 12 months
- Operating expenses: $8.951 billion (up from $9.094 billion for the same quarter of the previous year)
- Operating expenses decreased by -1.6% over the last 12 months
- Net loss: -$2.11 billion (down from $292 million for the same quarter of the previous year)
- Diluted loss per share: -$6.86 (down from $1.09 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 248.5 million (down from 268.3 million for the same quarter of the previous year)
- Cash and cash equivalents: $3.44 billion
- Cash and cash equivalents per share: $13.84
- Cash and cash equivalents makes up 33.8% of United Airlines' market capital
- Cash and cash equivalents makes up 6.5% of United Airlines' total assets
- Accounts receivable: $792 million
- Accounts receivable makes up 1.5% of United Airlines' total assets
- Goodwill: $4.523 billion
- Goodwill per share: $18.20
- Goodwill makes up 44.5% of United Airlines' total assets
- Stockholders equity of United Airlines' : $9.418 billion
- Stockholders equity per share: $37.90
- So United Airlines is trading at 1.07 times its stockholders equity per share. This is just outside the expected range of between 2 and 4 most firms tend to trade at
- Long term debt of United Airlines: $13.2 billion
- Long term debt makes up 47.8% of United Airlines total liabilities
United Airlines's management commentary on their 1st quarter 2020 earnings report
CHICAGO, April 30, 2020 /PRNewswire/ -- United Airlines (UAL) today announced first quarter 2020 financial results with a net loss of $1.7 billion, and an adjusted net loss¹ of $639 million. The company also outlined U.S. airline industry-leading efforts to manage through the most disruptive global crisis in the history of aviation. The company's total liquidity as of the close of business on Wednesday, April 29, 2020 was approximately $9.6 billion, including $2 billion under its undrawn revolving credit facility. The company currently expects daily cash burn² to average between $40 million and $45 million during the second quarter of 2020.
"Throughout the COVID-19 crisis we have maintained our focus - first on the safety of our customers and our people and second on swiftly taking action to keep United operating. We have been at the forefront of warning how deep of an impact we expect this crisis could have and how long we expect it could last. We've also led the industry in taking decisive steps to mitigate the operational and financial impacts of COVID-19 -- making deep schedule reductions, drastically reducing spending and aggressively raising liquidity," said Chief Executive Officer, Oscar Munoz. "While we are still in the midst of this crisis, we will not hesitate to make difficult decisions we believe will ensure the long term success of our company. When demand returns, we believe we'll be positioned to bounce back strongly and quickly because of our early and aggressive efforts to fight the worst financial crisis in aviation history."
"Throughout the COVID-19 crisis we have maintained our focus - first on the safety of our customers and our people and second on swiftly taking action to keep United operating. We have been at the forefront of warning how deep of an impact we expect this crisis could have and how long we expect it could last. We've also led the industry in taking decisive steps to mitigate the operational and financial impacts of COVID-19 -- making deep schedule reductions, drastically reducing spending and aggressively raising liquidity," said Chief Executive Officer, Oscar Munoz. "While we are still in the midst of this crisis, we will not hesitate to make difficult decisions we believe will ensure the long term success of our company. When demand returns, we believe we'll be positioned to bounce back strongly and quickly because of our early and aggressive efforts to fight the worst financial crisis in aviation history."
COVID-19 Actions
The company took early and aggressive action intended to mitigate the impact of COVID-19 to position the company to bounce back quickly and make United stronger when demand returns.
The company took early and aggressive action intended to mitigate the impact of COVID-19 to position the company to bounce back quickly and make United stronger when demand returns.
- First U.S. airline to make aggressive capacity reductions.
- Suspended share repurchase program on Feb. 24, 2020, after spread of COVID-19 to Italy and terminated the program on April 24, 2020.
- First U.S. airline to actively raise additional liquidity to manage the crisis. Since early March, the company raised $4.0 billion of new liquidity in three secured term loan facilities, new aircraft financings and an equity offering (excludes CARES Act Payroll Support Program funding and any Loan Program loans) as of the close of business April 29, 2020.
- The company entered into an agreement with a subsidiary of BOC Aviation Limited for lease financing of six Boeing 787-9 and 16 Boeing 737 MAX 9 aircraft that are currently subject to purchase agreements between United and The Boeing Company and are scheduled to deliver in 2020, including two Boeing 787-9 aircraft that were delivered in April.
- First U.S. airline to announce chief executive officer and president forgoing 100% of respective base salaries.
- First U.S. airline to announce all other officers of the company will take salary reductions, with every officer base salary reduced by 50%.
- Suspended merit salary increases for management and administrative employees and instituted a hiring freeze.
- Offered voluntary unpaid leaves of absence for U.S.-based employees -- with more than 20,000 employees now participating.
- Non-employee directors of the company waived 100% of cash compensation for the second and third quarters of 2020.
- First major U.S. airline to require all flight attendants to wear masks on duty.
- Postponed projects deemed non-critical to operation.
- Slashed spending on vendors and outside contractors.
- Reduced planned full-year adjusted capital expenditures by approximately $2.5 billion, bringing expected full-year adjusted capital expenditures to below $4.5 billion.3
- Plan to only take delivery of aircraft that have financing in place.
United Airlines (NASDAQ: UAL) stock price history
The image below, obtained from Google, shows the stock price history of United Airlines (NASDAQ: UAL) over the last 5 years. And it's not been a good time for United Airlines' stockholders. 5 years ago it was trading at around $53 and its currently trading at around $40.88 a stock. That's a loss of -22.9% suffered by United Airlines stockholders over the last 5 years.
The stock of United Airlines is trading at closer to its 52 week low of $17.80 than it is to its 52 week high high of $96.03, which to us is a clear indication that the short term sentiment and momentum of the stock of United Airlines is negative.
The stock of United Airlines is trading at closer to its 52 week low of $17.80 than it is to its 52 week high high of $96.03, which to us is a clear indication that the short term sentiment and momentum of the stock of United Airlines is negative.
United Airlines (UAL) vs Southwest Airlines (LUV) vs American Airlines (AAL)
The image below shows the stock price performance of United Airlines (UAL), American Airlines (AAL) and Southwest Airlines (LUV) over the last 3 years. The stock of United Airlines declined by -46.16% over the last 3 years, while the stock of Southwest declined by -41.29% and American Airlines declined by a significant -66.24% over the three year period.
Recent coverage of United Airlines
The extract below discusses the latest results from United Airlines as obtained from Finance.Yahoo.com
Investors in United Airlines Holdings, Inc. UAL need to pay close attention to the stock based on moves in the options market lately. That is because the Sep 18, 2020 $11.00 Put had some of the highest implied volatility of all equity options today.
What is Implied Volatility
Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.
What do the Analysts Think?
Clearly, options traders are pricing in a big move for United Airlines shares, but what is the fundamental picture for the company? Currently, United Airlines is a Zacks Rank #3 (Hold) in the Transportation - Airline industry that ranks in the Top 37% of our Zacks Industry Rank. Over the last 60 days, two analysts have increased their earnings estimates for the current quarter, while 12 have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from earnings of $1.16 per share to a loss of $10.06 in that period.
Given the way analysts feel about United Airlines right now, this huge implied volatility could mean there’s a trade developing. Oftentimes, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.
Read the full article here
Investors in United Airlines Holdings, Inc. UAL need to pay close attention to the stock based on moves in the options market lately. That is because the Sep 18, 2020 $11.00 Put had some of the highest implied volatility of all equity options today.
What is Implied Volatility
Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.
What do the Analysts Think?
Clearly, options traders are pricing in a big move for United Airlines shares, but what is the fundamental picture for the company? Currently, United Airlines is a Zacks Rank #3 (Hold) in the Transportation - Airline industry that ranks in the Top 37% of our Zacks Industry Rank. Over the last 60 days, two analysts have increased their earnings estimates for the current quarter, while 12 have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from earnings of $1.16 per share to a loss of $10.06 in that period.
Given the way analysts feel about United Airlines right now, this huge implied volatility could mean there’s a trade developing. Oftentimes, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.
Read the full article here
United Airlines (NASDAQ: UAL) latest stock valuation
So what is United Airlines' stock worth based on the release of their latest earnings report and the fiscal guidance provided by United Airlines? Based on the latest earnings results, and their fiscal guidance our valuation models provide a target (full value) price for United Airlines at $71.10 a United Airlines stock. We therefore believe that the stock is undervalued at its current price of $40.88
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $71.10 Therefore we see a good entry point into United Airlines stock at $64 or below. Since United Airlines is trading at well below our suggested entry point into the stock we rate United Airlines as a buy. (but this is only for the brave as the airline industry is still in for a very tough time in the next 18 months).
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $71.10 Therefore we see a good entry point into United Airlines stock at $64 or below. Since United Airlines is trading at well below our suggested entry point into the stock we rate United Airlines as a buy. (but this is only for the brave as the airline industry is still in for a very tough time in the next 18 months).
Next earnings release of United Airlines
It is expected that United Airlines will release their 2nd quarter 2020 earnings release towards end June 2020