United Airlines Is In Recovery, But UAL Stock Is Stuck Until Profits Appear

United Airlines (NASDAQ:UAL) stock has had a pretty good year so far. As of May 27, UAL stock is up over 36.7% year-to-date (YTD). It’s also up 100% over the past year. This is despite the heavy dilution from a number of equity capital raises in the last 12 months.

I suspect that UAL stock is going to stay in a holding pattern for a while until real profits are forecast for the company. Right now, it’s hard to see when that will occur. This is based on its difficult comparisons with its pre-Covid 19 results.

Nevertheless, although United burned cash at a rate of about $9 million per day, it reached positive daily cash flow in March. The airline now expects to continue to stay positive in terms of cash burn. This is a huge step forward.

In fact, United now has liquidity of $21 billion, although this includes undrawn $7 billion in Cares Act lines of credit. A more realistic measure is its actual cash balance, which was $12.975 billion at the end of the quarter.

Positive Outlook Going Forward

United Airlines says that it now up to 52% of its airline schedule compared to the pre-Covid period in 2019, as of May. I suspect that will increase over the summer months as well. Its capacity was down 54% from 2019 in Q1, but it now expects its capacity to be down just 45% in Q2.

Financially, United now says its new goal (after having become cash-flow positive in March) is to return to profitability. It expects to achieve huge gains in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in Q2. For example, its EBITDA margin was negative 60% in Q4. It now aims to achieve only negative 20% EBITDA margins in Q2.

And then Gerald Laderman, the CFO, said this on the conference call:

“… even if business and long haul international demand are down 70% we believe it’s very possible our adjusted EBIT that will be positive later this year.”

EBIT is earnings before interest and taxes. This is a higher level of profitability than EBITDA and implies that EBITDA will also be profitable as well.

So, United expects to be profitable by the end of the year. Therefore, on a run-rate basis, it might be able to make positive profits going forward throughout next year. Moreover, this will occur, according to the airline, even if its profitable international operations are still down 70%.

The way this works is for airline prices to rise. That is how it will have higher revenue than Q1 with only slightly improved demand in Q2. That is the conclusion that the analyst at Barron’s magazine had after reviewing the Q1 numbers. So, if you are planning on booking a trip, better do it now rather than in the fall, when prices will undoubtedly be much higher.

What to Do With UAL Stock

Analysts are still slightly positive on UAL stock. The survey by TipRanks.com indicates that 15 analysts have written about the stock in the last three months. Their average price target is $62.08. This is nearly 5% above the price today of $59.13 per share.

The same sort of lukewarm recommendation is seen on Seeking Alpha’s ratings page. It indicates that 21 analysts have a price target of $59.10, which is just slightly below today’s price.

The point is that analysts want to see when the company is going to become profitable, despite the company’s projections as I mentioned above. They want to see how things progress this summer and fall, and especially if the company is able to raise prices.

Until that happens, I suspect that UAL stock is going to stay in a holding pattern for a while.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.