Shares of United Continental (UAL) are on the rise after the company reported stronger than expected quarterly results and issued an upbeat outlook for earnings growth in 2019. The company also noted that is continuing to monitor any potential impact from the ongoing government shutdown as it has the largest exposure to the DC market from all the three major airlines. Commenting on the results, Stifel analyst Joseph DeNardi told investors that while United appears to have taken share "without much of a fight from whoever is losing it," he sees the risk of a competitive response increasing with the company's relative success.
RESULTS: On Tuesday after the market closed, United Continental reported fourth quarter adjusted earnings per share of $2.41 and revenue of $10.49B, both above consensus of $1.98 and $10.35B, respectively. The company also said it sees FY19 adjusted EPS $10.00-$12.00, with consensus at $10.93. Additionally, the airline said consolidated fourth quarter passenger revenue per available seat mile, or PRASM, increased 5% year-over-year, at the high end of the company's fourth quarter 2018 guidance range. Consolidated fourth-quarter unit cost per available seat mile, or CASM, increased 7% year-over-year, while consolidated fourth-quarter CASM, excluding special charges, third-party business expenses, fuel and profit sharing, decreased 0.7% year-over-year. For the first quarter, United Continental said it sees consolidated capacity growth of 5%-6% year-over-year, consolidated PRASM growth of 0%-3% year-over-year, and average aircraft fuel price per gallon between $2.00-$2.05. For FY19, the company sees consolidated capacity growth of 4%-6% year-over-year, adjusted CASM "better" to 0%, and adjusted CapEx of about $4.7B. During the company's fourth quarter earnings conference call, CEO Oscar Munoz said the company is "paying close attention to the government shutdown" and at this point United has not noticed much impact. Nonetheless, the company acknowledged that the government shutdown creates some first quarter uncertainty. United is the largest airline operating at Washington DC Dulles International Airport, which is in Northern Virginia, just outside Washington DC.
UNITED TAKING MARKET SHARE: In a research note to investors, Stifel analyst Joseph DeNardi said he believes United Continental's fourth quarter beat combined with misses from Delta (DAL) and American (AAL) support the view that the former's gains are coming at the expense of the latter two airlines. United is likely to continue taking more share until the company stops itself or the competitor who believes it is losing the share tries to stop United, the analyst contended, adding that United appears to have taken share "without much of a fight from whoever is losing it." However, DeNardi believes that could change as he suspects there is "some frustration on Amon Carter Boulevard related to American's degree of capacity "discipline" in recent years and its stock price. Further, the analyst argued that "airlines have behaved irrationally before" and sees the risk of a response increasing with United's relative success. DeNardi reiterated a Buy rating on United Continental's shares, but lowered his price target on the stock to $120 from $130 based on his sum-of-the-parts valuation, which values the core airline at $55 per share and the marketing company at $65 per share.
WHAT'S NOTABLE: On Tuesday morning, Delta Air Lines reported better than expected fourth quarter earnings but weaker adjusted revenue for the quarter, and gave lower than expected profit guidance for the first three months of this year. Talking to CNBC, Delta CEO Ed Bastian added that the airline lost $25M in revenue due to the partial government shutdown as fewer government contractors traveled. Commenting on the results, Cowen analyst Catherine O'Brien noted that Delta said that the government shutdown is hurting the business in the near-term, but believes it should be temporary. The analyst also told investors that she sees Delta as well positioned to drive earnings higher and able to adjust to the environment as needed. She reiterated an Outperform rating and $65 price target on Delta's shares.
PRICE ACTION: In late morning trading, shares of United Continental have gained 6% to $86.07. Peers are also advancing, with Delta shares up about 1%, American gaining nearly 4% and JetBlue (JBLU) rising over 1%.
JetBlue
+0.27 (+1.57%)
United Airlines
+5.2 (+6.40%)
Delta Air Lines
+0.49 (+1.02%)
American Airlines
+1.35 (+4.21%)