United Airlines Reports Wider-Than Expected Loss of $7.1B In FY20, Street Says Hold
United Airlines finished a turbulent FY20 with a loss of $7.1 billion versus a profit of $3 billion in FY19. The American airline called the Covid-19 crisis “the most disruptive crisis in aviation history”. The company announced its 4Q and FY20 results on Jan. 20.
United Airlines’ (UAL) posted a net loss of $1.9 billion in 4Q as compared to a profit of $641 million in the year-ago quarter. Its 4Q loss of $7.00 per share was worse than the consensus estimates of a loss of $6.60 per share.
Shares closed at $45.18 on Jan. 20. Revenues in 4Q plunged 69% year-on-year to $3.4 billion. Regarding its revenue outlook in 1Q21, the company again expects revenues to be down year-on-year by 65% to 70%.
United’s CEO, Scott Kirby commented, “Aggressively managing the challenges of 2020 depended on our innovation and fast-paced decision making. But, the truth is that COVID-19 has changed United Airlines forever. The passion, teamwork and perseverance that the United team showed in 2020 is exactly what will help us build a new United Airlines that's better, stronger and more profitable than ever. I could not be prouder of – and more grateful to – this team, which is going to lead us there.”
The company is looking at reducing structural costs from its operations and aims to achieve $2 billion of cost savings in the future. (See UAL stock analysis on TipRanks)
United had $19.7 billion in liquidity (cash and cash equivalents) available at the end of FY20. This includes $1 billion in an undrawn revolver credit facility and funds of $7 billion that are available under the CARES Act loan program from the US treasury.
It expects that its liquidity position at the end of 1Q21 would be similar as at the end of FY20. United is looking at FY21 to be a “transition year” and is hopeful that operational cost reductions and timely maintenance of its airline fleet will help it to exceed its 2019 adjusted EBITDA margin of 16% by 2023.
After the announcement of 4Q results, Raymond James analyst Savanthi Syth reiterated a Buy rating on the stock. Syth commented, “We believe United's 4Q20 report is largely in line with expectations with the 1Q21 outlook reflecting a continuation of current trends, consistent with Delta's view (except that United's revenue guide does not assume peak periods will continue to outperform off-peaks).”
Syth further said, “Despite near term uncertainty, United did provide a goal post for earnings recovery, targeting annual structural cost savings of at least $2B ($1.4B identified), or ~7% of 2019 non-fuel OpEx (5% identified), leading to a 2023 EBITDA margin exceeding the 16% achieved in 2019.”
Overall, analysts are neutral about the stock and the consensus is a Hold with 4 analysts suggesting a Buy, 5 analysts recommending a Hold, and 4 analysts a Sell. The average price target of $47.80 implies a 5.8% upside potential to current levels.
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