Why United Airlines stock fell 7% despite massive Boeing deal
December 14, 2022
By Brian Sozzi, Yahoo Finance
A big day for United Airlines got overshadowed by inflation data, opening up what some analysts see as a potential buying opportunity in the stock.
Shares of the airline carrier fell nearly 7% yesterday despite huge news that United would purchase 200 787 Dreamliners from Boeing. Shares fell another 1% in pre-market trading on Wednesday, and the company's ticker page remains among the most visited on Yahoo Finance.
"The decline is likely in response to the CPI [Consumer Price Index] report that showed U.S. air fares fell 3% from October to November," CFRA analyst Colin Scarola wrote in a note moments after the latest CPI reading. "However, the CPI air fare data has not historically been representative of UAL's pricing trends. For example, the CPI data showed U.S. air fares fell 8% from Q2 to Q3, but UAL's actual pricing was down just 1% Q/Q in Q3. Further, some moderation in air fares is to be expected given how much fuel prices have fallen recently, allowing airlines to charge less while increasing profitability. Notably, UAL forecasts a $3.61 average fuel price for Q4, but as of today, jet fuel prices are under $2.70 (-25% vs. forecast)."
Rival airlines such as Delta, Jetblue, and Southwest also saw large losses on Tuesday.
Scarola added that the sell-off was overdone and reiterated a Buy rating on United's stock. Her also raised his earnings estimates on United for 2022, 2023, and 2024 and took the price target to $60 from $59.
The move in United's stock occurred as the airline made a big play toward improving profitability over the next decade.
The carrier announced Tuesday it placed an order for 100 of Boeing's top-of-the-line 787 Dreamliners with options to purchase 100 more. In a press release, United described the purchase as "the largest widebody order by a U.S. carrier in commercial aviation history" and said it expects to take delivery between 2024 and 2032.
United also exercised options to purchase 44 Boeing 737 Max aircraft for delivery between 2024 and 2026 while adding that the orders will lead it to hire 15,000 new employees in 2023.
"We're setting records every month on travel demand," United CEO Scott Kirby said on Yahoo Finance Live described the ability to add more planes as "a bet that it's an option on a really strong recovery, which we think is what's going to happen, but not a requirement if the recovery is less robust than we anticipate."
And while Kirby said that "if you squint hard... [you could] see what I would call pre-recessionary behavior," he reaffirmed that this year's ongoing travel rebound from the COVID-19 pandemic has continued and "demand is really strong for us right now."