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Analysts Upbeat On Airline Stocks With United And American Reporting

Date: October 18, 2022

Analysts Upbeat On Airline Stocks With United And American Reporting

By Kit Norton, 10/18/2022, Investors Business Daily

Airline giants American Airlines (AAL) and United Airlines (UAL) report third-quarter earnings this week. The financial reports come after airline stocks surged last week on record revenue and upbeat forecasts from Delta Air Lines (DAL). UAL shares and AAL stock advanced early Tuesday.

While Delta missed earnings views last Thursday, the air carrier announced it expects its Q4 EPS to recover to 5%-9% above levels from the same period in 2019. Delta's guidance suggested demand for air travel was holding up, with international destinations a big draw for consumers.

Analysts and investors await reports from airline stocks United Airlines on Tuesday and American Airlines on Thursday to see if there is an industrywide recovery from the Covid pandemic.

Fellow airline stock Alaska Air Group (ALK) also reports Q3 financials Thursday before the market opens. EPS is seen jumping 62% to $2.39 while sales rise 47% to $2.8 billion, according to FactSet.

Airline Stocks: United Airlines Earnings

Estimates: Analysts forecast earnings growing to $2.28 per share, up from a loss of $1.02 a year ago. Sales are expected to increase 65% to $12.7 billion.

Results: United Airlines will announce Q3 earnings after the market closes on Tuesday, Oct. 18.

United Airlines stock popped 3% to around 37.1o during Tuesday's market trading.

UAL shares have a 44 Composite Rating out of 99. The stock has a 44 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement. The EPS rating is 65.

In September, the Chicago-based airline reported it saw "strong demand" in Q3 compared with before the Covid-19 pandemic.

Airline stock United reported that it expects its total operating revenue to increase 12% in Q3 2022 vs. Q3 2019, up from its prior target of 11% growth.

United added in its September federal filing that it has also improved operational reliability throughout the year. United Airlines also increased its jet-fuel cost estimate to $3.83 in Q3, modestly higher than its previous forecast of $3.81.

However, other costs are expected to be in line or slightly better than original expectations. With increased capacity, United expects cost per available seat miles, excluding fuel, profit-sharing and nonrecurring charges, to be up 16% vs. Q3 2019, vs. previous expectations of 16%-17%.

Last week, United Airlines announced it plans to add new trans-Atlantic travel locations to its schedule, a sign it is ramping up flights in the aftermath of the Covid pandemic.

Beginning in the summer of 2023, United says it will add three new city destinations, and six more flight options to popular destinations — including Rome, Paris, Barcelona, London and Berlin. United said in a press release it saw "historic levels of demand for travel to Europe in the summer peak, up 20% compared to 2019."

In the second quarter, United earned $1.43 per share, up from a net loss of 3.91 in Q2 2021. Revenue ballooned 121% to $12.1 billion.

Like many air carriers, United had a run of losses during the Covid pandemic. If analyst and company predictions for Q3 hold true, it would be the first time since Q4 2019 that United would have consecutive profitable quarters.

American Airlines Earnings

Estimates: Wall Street sees earnings per share ballooning to 56 cents, up from a loss of 99 cents a year ago. Analysts are expecting revenue to grow 49% to $13.4 billion, according to FactSet.

Results: American Airlines will announce Q3 earnings Thursday morning.

Airline stock American Airlines climbed 4% Tuesday to around 13.70. AAL shares have a 36 Composite Rating out of 99. The stock has a 33 Relative Strength Rating. American Airlines stock has an EPS rating of 65.

Fort Worth, Texas-based American reported last week it expected Q3 sales to grow 13% vs. the third quarter in 2019. The company's previous revenue guidance forecast an increase of 10%-12%.

AAL also increased its total revenue per available seat mile (RASM) forecast to 25%, up from a previous range of 20%-24%, vs. the same period in 2019.

American Airlines did not change its expectations for the cost of jet fuel in Q3, maintaining its view of $3.73-$3.78 per gallon.

However, the company did re-evaluate its cost per available seat mile, another key metric used by the airline industry. American Airlines expects those costs to be up 14% vs. Q3 2019, putting it in the high end of its previous guidance of 12%-14%.

The increased guidance for Q3 comes after American Airlines posted a profit of 76 cents per share in Q2, breaking a string of nine straight quarters with losses. Revenue also increased dramatically, ballooning 81% to $13.4 billion in the second quarter.

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