can say so united airlines (Nasdaq:UAL) has really taken off since the beginning of the year. Since its first trading day in 2023, UAL’s share price has risen, with its share price up about 30%.
Stocks have started to bounce back in recent days, but this could only be a temporary slowdown. While it’s hard to prove, UAL’s latest small sale could be the result of investors taking profits following the legacy carrier’s latest strong earnings report.
Given the high probability of a recession in 2023, these investors may fear that the subsequent financial performance will be less than promising. But even with a recession looming, the airline industry forecasts demand should remain strong.
This suggests United may continue to knock out of the park with quarterly results, which in turn will fuel further liftoffs for the stock.
UAL Stocks See Strong Earnings, Recession Fears
On January 17, United Airlines announced its fourth quarter results. United Airlines’ revenue for the quarter was $12.4 billion, up 51.4% from the year-ago quarter. Earnings came to $2.55 per share against his reported loss of $1.99 per share in the fourth quarter of 2021.
More importantly for UAL stocks, these results significantly exceeded expectations. Earnings were slightly above consensus, with earnings beating sell-side expectations by 44 cents a share.
Management also provided earnings forecasts for the current quarter (between $50 cents and $1 per share) and for the full year 2023 ($10 to $12 per share). Respectively).
But despite strong earnings and updated guidance, recession fears may re-establish themselves. Given the cyclical nature of the airline industry, it generally makes sense to watch out for airline stocks heading into recession.
In industries with high fixed costs, small changes in demand can have a dramatic impact on operating results. That said, while the economic environment could be challenging over the next 12 months, the impact on air travel demand may be less severe.
Why United can fly high in a recession
In our previous article on UAL shares, we discussed United CEO Scott Kirby’s high confidence in the company’s prospects for 2023.
While Kirby acknowledged that airlines are bracing for what he expects to be a “mild recession,” he continued to point out that the economic downturn may not mean stormy skies for airlines. He pointed out strong demand for reservations.
But now, Kirby’s optimistic statement doesn’t just indicate a good time ahead for United Airlines. more than
Airline website traffic also continues to increase compared to last year’s levels. While industry tailwinds such as post-lockdown ‘revenge travel’ may be fading, other factors, such as increased corporate travel, are further boosting demand.
UAL continues to trade at discounted valuations due to uncertainty about the impact of the recession. The stock is trading at just 7.1 times the sell-side’s 2023 earnings forecast and four to five times his management’s current outlook. If Kirby’s valuation proves correct and current demand trends remain largely unchanged, the stock could undergo a significant revaluation.
Pre-Covid, UAL traded at around $80 per share. If United can meet and exceed expectations this year and generate $12 per share, it would be fully back to pre-pandemic levels of profitability. Then justify a move back to past price levels.
Economic headwinds have not yet impacted airline profitability, but the risk remains that the industry will be adversely affected. For example, if the 2023 recession were to exceed ‘mild’, current demand trends could be reversed.
Reduced demand could also reduce the airline industry’s ability to pass on rising costs to passengers. Both of these factors can have a serious impact on profitability.
Nonetheless, UAL stock remains a promising comeback story until more data emerges that shows demand for air travel is deteriorating.
UAL shares receive a B rating portfolio grader.
As of the date of publication, neither Louis Navellier, the primary person responsible for this article, nor InvestorPlace’s research staff held positions (directly or indirectly) in the securities referenced in this article.