Just like a flight preparing for departure, United Airlines Holdings Inc. (NASDAQ: UAL) is taxiing toward a breakout, potentially rising to new heights.
The stock has been forming a base below a March 7 high of $55.04. With the broad market weakness in recent sessions, United shares have been selling off, and the stock may be forming a handle with an early buy point above $54.06.
The current price consolidation qualifies as a bullish first-stage base because the stock undercut its previous structure lows when it gapped lower for several sessions in a row in March.
Although it may seem like a stretch, those gaps were due to the regional banking crisis; in April, United CEO Scott Kirby said last-minute business bookings dropped in the aftermath of the Silicon Valley Bank failure, as businesses fretted that the economy would turn sharply lower.
Company Maintains Full-Year Growth Outlook
In a call with analysts in April, Kirby noted that the company maintained its outlook on full-year profit and revenue growth.
United is among the airline industry’s top price performers, having posted the following gains:
- 1 month: 10.85%
- 3 months: 22.30%
- Year-to-date: 39.79%
- 1 year: 45.26%
United is an attractive watch-list candidate at the moment because it’s potentially very close to breaking out. Delta Air Lines Inc. (NYSE: DAL) has also been a high-flier and is worth tracking, but shares are extended from a breakout above $20.30. The stock is currently showing sideways trade as it forms a mild consolidation well above key moving averages; if it rallies above $43.16, that may offer an entry point.
Meanwhile, American Airlines Group Inc. (NYSE: AAL) is forming a similar base to United’s, even in the detail of possibly forming a handle. Both stocks could potentially be in a buy range very soon. The only real difference in their technical performance is something you can see if you compare the American Airlines Group chart with the United Airlines chart: United flew out of its base at a somewhat steeper trajectory. If you’ve ever flown out of John Wayne Airport in Southern California, you understand that fast takeoff metaphor as it applies to United’s uptrend in the past few months versus American’s more gradual ascent.
Analysts expect both United and American to grow earnings at triple-digit rates this year, while Delta is seen increasing net income by 78%, which is also quite healthy. All are seen increasing earnings at double-digit rates in 2024.
Industry Profitability Outlook Strengthens
The reasons aren’t difficult to grasp: It’s well known that leisure travel bounced back strong after the pandemic due to what some pundits term “revenge travel,” or pent-up demand after restrictions were lifted. According to a June 5 report from the International Air Transport Association, “Airline Profitability Outlook Strengthens,”
IATA research found that airline industry revenues are expected to reach $803 billion this year, up 9.7% over 2022 but 4.1% below 2019.
IATA estimated that an inventory of 34.4 million flights will be available in 2023, up 24.4% from last year but down 11.5% from 2019.
Passenger revenues are expected to reach $546 billion, a year-over-year increase of 27% but down 10% from 2019.
Buckle Up For Turbulence
Regardless of the current reasons for optimism, as well as the strong chart action, investors should always use some extra caution when it comes to this industry. As we all saw, it’s extremely vulnerable to economic downturns, fluctuating passenger demand, fuel prices, geopolitical tensions, and global health crises.
That doesn’t mean you can’t find opportunities in the industry, though. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.B) was a buyer of airline stocks in the most recent quarter, nabbing shares of United, Delta, American and even the beleaguered Southwest Airlines Co. (NYSE: LUV), which has yet to follow other airlines higher as it recovers from December’s self-induced meltdown.