United Airlines Holdings, Inc. (NASDAQ:UAL), reported its second quarter fiscal 2020 results ended in June after market today, that beat top line estimates but came in short for bottom line analyst targets.

The company generated $14.75B of revenue, above analyst estimate of $1.396B by 6%, but was down by 82% year over year.

Earnings per share were a loss of ($9.31)/sh, below street estimates of ($9.248)/sh by a margin of 1%

The company’s EBITDA loss was -$2.453B, 4% below consensus estimates of -$2.362B.

The virus caused lockdown has lowered the passenger count from 42.59M in the last year’s same quarter to 2.813M this reported quarter. This translates to a load factor of 33.1% compared to year-ago capacity of 86%.

This has led the company to take drastic measures to finance its business, which raises concerns whether they can afford such financing until capacity is returned to normal with the help of a vaccine.

Valuation Analysis

Since the beginning of the lockdown, the airline industry has not recovered back to its prior levels yet as shown by the following price chart.

Along with industry wide reduced year-over-year passenger count, revenues naturally nosed dived as shown below.

In the case of United Airlines, due to this reason its passenger revenue per available seat was $7.60 in the second quarter, which was 47% lower year-over-year, and 34% lower quarter-over-quarter.

As a result in order to continue operating, United has ratcheted up its borrowings causing it to be over levered in addition to its high current levels.

This is one of the key reasons as to why United’s price to earnings ratio is still the third  lowest in the sector.

Final Takeaway

Although the company reported disappointing earnings results, it still managed to slightly beat analyst revenue estimates by 6% year over year.

Investors should also note that while the company is running at only 33.1% capacity, it has enough cash to operate at current levels for another 2.5 more quarters.

Therefore, the company better hope a vaccine is introduced soon enough otherwise it would have to take additional financing measures until pre pandemic capacity returns.

In the meantime, we recommend investors to sit on the sidelines and wait for a better outlook to be given by health officials.

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