3 Airline Stocks Ready for Takeoff

Coronavirus-induced stay-at-home orders and border closures have wreaked havoc on the airline industry in 2020. Furthermore, a move to remote working during the pandemic threatens to significantly reduce corporate travel moving forward. Philanthropist and Microsoft co-founder Bill Gates recently said he expects business travel to disappear by over 50% longer-term. “My prediction would be that over 50% of business travel and over 30% of days in the office will go away,” Gates told the New York Times’ Dealbook conference, per CNBC.

However, over the past month, airline stocks have flown back into favor with investors after successful COVID-19 vaccine breakthroughs give hope that pre-pandemic travel levels may return as more people take to the skies. Below, we take a look at the three largest airline stocks by market capitalization.

Southwest Airlines Co. (LUV)

The Dallas-based low-cost carrier operates over 700 aircraft in an all-Boeing 737 fleet, primarily targeting leisure and independent small business customers. Although the Federal Aviation Administration (FAA) lifted its 20-month ban of the troubled Boeing 737 Max from flying passengers Wednesday, Southwest said the jet wouldn’t re-enter service until later next year. From a technical standpoint, the share price broke out above a nine-month downtrend line that may see it retest its pre-pandemic high at $58.83. The airline has a market cap of $27.35 billion.

Delta Air Lines, Inc. (DAL)

With a market cap of $25.67 billion, Delta flies to over 300 destinations in more than 50 countries. The company announced in September that it plans to borrow $6.5 billion, backed by its frequent-flyer loyalty program to secure liquidity to ride out the tail end of the pandemic.

More recently, the full-service airline canceled one in every five flights it was scheduled to operate on Thanksgiving Day amid crew shortages brought about by the health crisis. Turning to the charts, a recent cross of the 50-day SMA back above the 200-day SMA and breakout above a multi-month downtrend line may lead to further gains toward crucial overhead resistance at $51.

United Airlines Holdings, Inc. (UAL)

United Airlines operates as a full-service carrier through its strategically located hubs in San Francisco, Chicago, Houston, Denver, Los Angeles, New York/Newark, and Washington, D.C. Last month, Raymond James’ airline analyst Savanthi Syth upgraded the airline’s stock to ‘Outperform’ from ‘Market Perform’ and reiterated the firm’s $60 price target.

Syth argues the company sits in a better position than its competitors for a travel revival after securing a pilot agreement through 2022. He also noted that United has no pending fleet retirements, allowing it to rapidly increase capacity when demand picks up. Moving on to the chart, a comprehensive breakout above a crucial downtrend line and the 200-day SMA could see the shares take flight to the January swing low at $74.34. The airline has a market value of $13.18 billion.

For a look at today’s earnings schedule, check out our earnings calendar.

United Airlines Warns Of Rising Cancellations

United Airlines Holdings Inc. (UAL) reduced guidance on Thursday, noting a deceleration in bookings and increase in cancellations as a result of the surging COVID-19 pandemic. Major airline carriers had booked stronger-than expected traffic over the summer months, as the virus faded from the front pages in most parts of the world. Several CEOs upwardly revised dismal forecasts during that period, allowing complacency to overcome common sense.

Business Travel Will ‘Go Away’

Former Microsoft Corp. (MSFT) Bill Gates put a damper on Boeing Co. (BA) and the airline sector on Wednesday, declaring that 50% of business travel will ‘go away permanently’ because of technology like the virtual meeting software offered by Zoom Video Communications Inc. (ZM). He also predicted 30% of people will be working from home in the long-term, allowing corporations to become leaner and meaner, with fewer-owned properties and multiyear leases.

United Airlines now expects fourth quarter capacity to drop ‘at least’ 55% compared to same quarter in 2019. It also guided for a 67% reduction in revenue, below prior forecasts. The company will also burn cash at a faster rate, eating up approximately $15 million to $20 million, plus $10 million of average debt principal and severance payments per day. None of these forecasts bode well for Delta Air Lines Inc. (DAL) or American Airlines Group Inc. (AAL).

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in recent months, now standing at a neutral ‘Hold’ rating based upon 5 ‘Buy’, 7 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $32 to a Street-high $54 while the stock is set to open Thursday’s U.S. session right at the median $41 target. Capacity news and vaccine updates should drive price action into 2021 with this mid-range placement, suggesting limited upside.

The stock posted an all-time high at 97.85 in 2018 and entered a narrow consolidation that broke to the downside in February 2020, also breaking multiple support levels going back to 2013. The 2016 low in the upper 30s is now getting tested while continued upside will run into a buzz saw of resistance in the 50s, where the 2017 low and 200-week moving averages are narrow-aligned. On the downside, bears will gain control of the tape if a selloff pieces rising 2020 lows near 30.

For a look at all of today’s economic events, check out our economic calendar.

United Airlines Flies Sideways After Quarterly Earnings Crash

United Airlines Holdings, Inc. (UAL) traded flat in the extended-hours session Wednesday after the Chicago-based carrier swung to a net loss of $1.8 billion in the third quarter (Q3) as the coronavirus pandemic continued to pummel air travel demand.

The airline reported adjusted earnings of -$8.16 per share, a wider loss than the -$7.53 figure Wall Street had expected. This compares to earnings per share (EPS) of $4.07 a share in the year-ago quarter. Revenue of $2.49 billion came in roughly in-line with analysts’ expectations of $2.50 billion. However, the metric fell nearly 80% from the September 2019 quarter as the airlines slashed capacity.

Management anticipates the challenging conditions to continue over the short-term but remains more optimistic about the longer-term future. “Even though the negative impact of COVID-19 will persist in the near term, we are now focused on positioning the airline for a strong recovery that will allow United to bring our furloughed employees back to work and emerge as the global leader in aviation,” United CEO Scott Kirby said in a statement accompanying the quarterly results, per Business Insider.

Through Wednesday’s close, United Airlines stock has a market capitalization of $10.36 billion and trades nearly 70% lower on the year. Since mid-July, price performance has improved, with the shares gaining 12%.

Improving Efficiency

The company said it reduced its daily cash burn and principal debt payments during the quarter to $25 million a day, down from an average of $40 million per day in the previous quarter. Meanwhile, total operating costs plummeted by nearly 60% compared to the third quarter of 2019. United also said it had commenced furloughing up to 13,000 employees after federal payroll support expired at the end of last month.

Wall Street View

JPMorgan analyst Jamie Baker upgraded United Airlines to ‘Overweight’ from ‘Neutral’ and lifted his price target to $52 from $44. Baker argues the company “can endure the current downturn with sufficient liquidity,” despite the recent volatility in the airline sector.

Most other analysts on Wall Street remain mostly bullish on the stock. It receives 7 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 12 ‘Hold’ ratings. Just one analyst currently recommends selling. Price targets range between $60 and $32, with the average consensus 12-month target sitting at $43.41. This implies an upside of 22% from yesterday’s $35.61 close.

Technical Outlook and Trading Tactics

United shares have remained in a narrow eight-point range since late June, with neither the bulls nor bears able to take control of the price action. Instead of trying to guess which way price will break out, let the market determine direction. If the stock breaks to the upside, look for a retest of the June swing high at $48.95. Alternatively, if the shares break below the trading range, anticipate a fall back down to crucial support around the $22.50 level.

United Airlines Forecasts Bigger Q3 Revenue Loss As COVID-19 Slowdown to Last Longer; Target Price $25 in Worst Case

United Airlines Holdings, one of the largest airlines in the world, forecasts that its passenger revenue in the third quarter of 2020 will plunge nearly 85%, more than a previous forecast of 83% decline as COVID-19 slowdown bites air travel demand and said it would continue to cancel flights until it sees signs of a recovery, sending its stock down over 2% on Wednesday.

The third-largest airline in the U.S. said they do not currently expect the recovery from COVID-19 to follow a linear path and the company’s actual flown capacity for the third quarter of 2020 is now expected to decrease about 70% year-over-year, as compared to the previous forecast of a decrease of 65%.

United Airlines’ shares fell over 2% to $36.32 on Wednesday; the stock is down about 60% so far this year.

United Airlines stock forecast

Thirteen equity analysts forecast the average price in 12 months at $39.43 with a high forecast of $61.00 and a low forecast of $25.00. The average price target represents a 7.97% increase from the last price of $36.52. From those 13 analysts, five rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $37 with a high of $79 under a bull-case scenario and $21 under the worst-case scenario. United Airlines’ stock price forecast was raised by JP Morgan to $44 from $43.

Other equity analysts also recently updated their stock outlook. In June, Seaport Global Securities initiates coverage with “Buy” rating and $56 target price, Citigroup raised price target to $47 from $38 and BofA Global Research upped their price objective to $45 from $30.

However, we think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst views

“We believe United Airlines (UAL) has the most challenged network of any airline in our coverage based on our path for a COVID recovery and a levered balance sheet, which could limit rebound opportunities,” said Ravi Shanker, equity analyst at Morgan Stanley.

“In addition, UAL’s new CEO Scott Kirby (former COO) is very well regarded by investors but investors may wait to see evidence that UAL is indeed focused on cost improvement rather than aggressive growth (at the cost of PRASM) before giving the stock credit,” Shanker added.

Check out FX Empire’s earnings calendar