Tuesday was another dispiriting day for the beleaguered airline industry as the International Air Transport Association (IATA) lowered already depressed estimates on the number of people expected to board flights in 2020.
Airline stocks trended downwards, among them United Airlines (UAL). It has become a familiar sight in 2020 for the struggling airline, as the stock has shed 60% of its value year-to-date.
So, with the pandemic still hogging the headlines and a lack of clarity on further stimulus, is now the right time to pull the trigger on UAL shares?
It is, in the near-term, according to Deutsche Bank analyst Michael Linenberg. The analyst issued a Catalyst Call on the stock arguing that “as the industry works to implement measures to address the patchwork of quarantine orders, both in domestic and international markets” the stock sets up “favorably” heading into the fall.
Expounding on this, Linenberg said, “We believe United (UAL) is poised to break out of its trading range as improved volumes, revenues, and cash burn drive renewed investor interest in a name that has led the industry in responding to COVID-19. Actions and initiatives that led the industry included: numerous liquidity raising transactions including the first transaction secured by the company’s loyalty program, widespread use of passenger freighters, elimination of change fees, and pre-departure COVID-19 testing, among other things.”
However, the short-term investment idea does not come without risk. Although the CARES Act Secured Loan Program should provide United with another $5.2 billion, should there be no extension to the Payroll Support Program on October 1, Linenberg expects more downward pressure on the shares. Furthermore, a spike in COVID-19 cases could undermine the expected recovery in consumers’ appetite for airline travel.
Overall, Linenberg has a short-term Buy rating on UAL shares along with a $54 price target, suggesting upside of 56% could be in the cards. (To watch Linenberg’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 6 Buys, 2 Holds and 1 Sell add up to a Moderate Buy consensus. In addition, the $42.50 average price target indicates ~21% upside potential from current levels. (See UAL stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
