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The Ratings Game: United Airlines stock gets downgraded ahead of air carrier’s quarterly results

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Analysts at UBS on Monday downgraded their rating on United Airlines Holdings Inc. on concerns the airline’s expansion plans are facing “visible headwinds” and the stock has already priced in strong bookings.

The analysts, led by Myles Walton, downgraded United
UAL,
-1.77%

shares to neutral, from buy. Confidence that the bookings are “offsetting peak fuel have played out,” they said in a note to clients. “(Delta Air Lines Inc.’s
DAL,
+0.08%

) reported results confirmed that strength.”

See also: Delta Air’s profitable March and upbeat guidance boost airline stocks

“Although we see strong pricing in 2Q and beyond, the operational picture could be less smooth for (United) as they adapt to an aggressive growth strategy,” UBS said.

United is expected to report first-quarter results after the bell on Wednesday, with a call with Wall Street analysts slated for early Thursday.

Analysts polled by FactSet expect United to report an adjusted loss of $4.22 a share on sales of $7.7 billion. That would compare with an adjusted loss of $7.50 a share on sales of $3.2 billion in the first quarter of 2021.

Related: Inflation and weak business and international travel are hurdles for major U.S. airlines as earnings season kicks off

In a separate note, the UBS analysts raised their rating on Delta Air shares to buy.

Delta “has been slower than peers to restore capacity by choice,” as its latest schedules suggest capacity down by about 16% as compared with the second quarter of 2019, they said.

That “restraint has allowed for consistent solid operating performance and we suspect share pick-ups as others struggle,” the UBS analysts said.

“Restrained capacity+solid ops set stage for share gains and pricing power” while other carriers are struggling with aircraft delivery timing or capacity restoration.

American Airlines Group Inc.
AAL,
-1.34%

brings major U.S. airlines’ first-quarter reporting cycle to a close on Thursday.

FactSet consensus calls for an adjusted quarterly loss of $2.39 a share on sales of $8.8 billion, which would compare with a loss of $4.32 a share on sales of $4 billion in the year-ago period.

Going into the financial snapshots for the quarter, Wall Street is worried about inflation affecting demand for air travel and hoping to see more signs of a recovery in international and business travel.

Shares of the top 3 U.S. air carriers are in the red for the past 12 months, but are roughly in line with the broader losses for the industry, with the exception of Delta Air stock, which is faring better.

American Airlines stock is off 15% in the past 12 months, while Delta and United stocks are down 9% and 21%.

That compares with a decline of 18% for the U.S. Global JETS ETF
JETS,
-0.69%
,
and contrasts with a 5% advance for the S&P 500 index.
SPX,
+0.30%

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