Morgan Stanley Thinks United Airlines' Strong Guidance Is Achievable

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  • Morgan Stanley analyst Ravi Shanker reiterated an Overweight rating on the shares of United Airlines Holdings Inc UAL with a price target of $67.00.
  • Q4 was a big beat despite being the most impacted airline from a weather perspective, said the analyst.
  • United delivered a 9% pre-tax margin in the quarter by effectively navigating the winter storm despite having more exposure to it than any other airline, added the analyst.
  • The management has previously said that corporate had plateaued toward the end of the year, which they now attributed to corporates running out of travel budgets, said the analyst.
  • However, like Delta Air Lines Inc DAL, management has seen a strong start to 2023 in January and booked revenue in 2H February/March is running 30-40% above 2019 levels.
  • FY23 guidance came in merely 70% above consensus, mentioned the analyst.
  • The big debate right after the guidance dropped was whether the FY23 expectation was artificially inflated by a low fuel guide at $2.85- 2.90/gal and DAL's assumption of $3.00- 3.20/gal, the analyst said.
  • However, the analyst does not believe this is a major issue as jet fuel price has been extremely volatile, and it is tough to accurately mark to market it week by week.
  • Also, management believes that jet fuel cost is effectively an industry pass-through, especially at current industry conditions, to which the analyst agrees.
  • CEO Kirby passionately called out the industry to acknowledge structural capacity constraints.
  • Management believes that capacity constraints across the industry are long-term structural challenges and are unlikely to normalize any time soon.
  • Price Action: UAL shares are trading lower by 1.88% at $47.94 on the last check Thursday.
  • Photo Via Company
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