(UAL) (United Airlines)

Overview of the Company - United is an airline company that transports cargo and passengers. It is relatively diverse as it relies on international travel as well as domestic. It has over a 14 billion dollar market cap, making it the largest company that I will be reviewing today. However, like all of the airline companies I will be reviewing, they are all currently bleeding cash and have a negative EPS. This will make it hard to value these companies, but I will be giving it a shot and declaring what I think of the group as a whole.

Fundamental Analysis - The airlines are poised to make a comeback if the economy can come roaring back or if the government decides to step in and help these companies. However, the stock prices of these companies already have big year over year gains and it is obvious that stock has been consolidating over the past 6 months. YTD, Ual is only up 7% YTD while the S&P is up nearly 20%.

How (UAL) Stacks Up to Competitors - I will be comparing United Airlines to Spirit Airlines (SAVE), Jet Blue (JBLU), and a larger, more competitive partner, American Airlines, (AAL). AAL has a 12 billion dollar market cap, making it closer to UAL than SAVE and JBLU who are much smaller and have a bigger focus on strictly domestic air travel. Like I mentioned in the introduction, all four companies have a negative EPS meaning that they are losing money as we speak and many have had to raise cash in the past by issuing (selling) stock. This waters down the value of each stock. All four stocks have a profit margin of around -30%, but it is worth noting that UAL has the worst among the group at -37%. However, United is sitting on a good amount of cash, around $21 billion, but it's worth noting that the company has twice as much debt as that amount. SAVE and JBLU are actually trading pretty close to book value, hinting that the market may still undervalue the return of the economy. While AAL has a negative book value, Ual is not much better as it trades at about 3 times book. AAL continues with the bad news, as almost 18% of the share float is short. Now this is nowhere near memestock level or short squeeze level, but it is worthy to note how much higher the short ratio is compared to the other companies. By looking at the data so far, it is clear that AAL is the worst of the group and many of the shorts agree.

Bull Case - The bull case for this stock is simple. With a reopening economy, and a big boost in riders, moreover, riders who are willing t0o way more to get out of the house. All United has to do is to surprise the bears, and there are a lot of them. Whether they are short the stock or just underweight it. That can cause a revival of the airline trade and cause new inflows and convince investors that the airline trade is indeed alive. All United and the other airlines have to do is convince that their companies are investable again. This new influx of investors can boost the share price, and the company can raise cash and come out of this pandemic strong. There is also always the government. Like we saw in the ‘08 recession, the government still did not let the big corporations fall and they may come to rescue the airlines. This would ensure not only their survival, but the survival of the airline industry itself.

Bear Case - While the bull case is simple for this company, so is the bear case. Even if the company is able to make it out of the pandemic, they still have way too much debt on their balance sheet. They may have to dilute their stock by issuing more shares again. If they don't do this, their debt may be too much to handle and may not see profitability for the coming years. UAL is in a lose - lose scenario.

Valuation and My Price Target - It is hard to come up with a value for this stock as it is losing money rapidly and has a debt issue. However, we can still turn to technical indicators. Until recently, UAL had hung around its 50 Day simple moving average as a support level. Now it seems that 50 DMA support has turned into resistance for the stock. It has now traversed all the way back to its 300 DMA for its new support. I believe that at around the $44-$45 is where this stock will hold for the rest of the year. That being said, if there continues to be good news, or better profitability for the company, I believe that is a good reason for the stock to resume trading at about the $54-$56 level that it held on to for over 4 months earlier this year.

The Verdict - BUY HOLD SELL

When I had initiated multiple investments into the airlines, the market had considered them dead. The markets had priced in too much of a drop and underestimated the resiliency of these companies and the American economy. Now, the market has properly adjusted for the return of this industry and it is evident that these companies are waiting for the next stimulus to drive them higher. However, as we near the end of the pandemic, we continue to see new variants and vaccine hesitancy, it is clear that there is no clear flight forward. That is perhaps why we have seen consolidation the past 6 months of trading. The airlines are either flat or down in the past 6 months while the broad averages are up all over 10%. This isn't a sign of weakness, but after the monstrous move in a lot of these stocks (many of them close to doubling) it is only fair to see these stocks take a breather. That being said, I think the best bet that you can place in the airline industry would either be in United or if you want a more specific domestic economy play, JetBLue. However, I would wait until these stocks show significant strength before jumping into these cash bleeding stocks. For now, UAL is a HOLD.

*all data provided by yahoo finance and nasdaq.com