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The Ratings Game: United’s Q3 results, buoyed by strengthening travel demand, lift airline stocks

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United Airlines reported third-quarter results that beat analysts’ forecasts after the closing bell on Tuesday, lifting airline stocks on Wednesday.

The carrier’s revenue was $12.877 billion, compared with $7.75 billion a year ago and $11.38 billion in 2019, before the COVID-19 pandemic hit. Analysts polled by FactSet expected revenue of $12.743 billion.

United Airlines Holdings Inc.
UAL,
+7.73%

also gave an upbeat fourth-quarter forecast. “Looking forward through the end of the year, the airline expects the strong COVID recovery trends to continue to overcome the recessionary pressures in the macroeconomic environment,” United said in a statement.

The airline highlighted three trends for air travel demand that it says are offsetting any economic headwinds. “Air travel is still in the COVID recovery phase, hybrid work gives customers the freedom and flexibility to travel for leisure more often, and external supply challenges will limit industry supply for years to come,” it said.

“An impressive 3Q22 earnings beat and 4Q22 outlook is being driven primarily by effective cost management and yield strength,” wrote Cowen analyst Helane Becker in a note released on Wednesday. “Cost inflation, which has been an ongoing problem for carriers in the last several quarters, appears to be decelerating.”

Cowen rates United outperform.

Also read: United Airlines says travel demand is stronger than recession pressures; shares rally

Buoyed by the third-quarter results, United shares rose 5.4% before market open. Shares of American Airlines Group Inc.
AAL,
+2.96%
,
which reports its third-quarter results on Thursday, rose 2.2%.

Alaska Air Group Inc.
ALK,
+0.06%

also reports its third-quarter results on Thursday. The carrier’s stock rose 2% before market open on Wednesday.

United’s results continue the positive start to the airline sector’s earnings season. Delta Air Lines Inc.
DAL,
+1.82%

kicked off the sector’s reporting season last week, with the carrier reporting revenue significantly above the same period in 2019. The carrier also gave a better-than-expected fourth-quarter outlook.

Now read: Delta kicked off airline earnings season with a bang. What does it mean for other carriers?

Delta shares rose 1.2% before market open on Wednesday.

“Following Delta’s better than expected 4Q outlook last week, we noted United was positioned the best to benefit from the same revenue tailwinds driven by increasing corporate demand (particularly finance/consulting sectors) and international network restoration due to strong Transatlantic demand (with U.S. point-of-sale benefiting from the stronger USD) and reopenings in the Pacific,” wrote Raymond James analyst Savanthi Syth in a note released on Tuesday. “We would note that United’s top line view is ahead of Delta’s, likely reflecting the leverage to favorable trends given United’s large coastal hubs and greater international presence.”

Raymond James rates United outperform.

Of 21 analysts surveyed by FactSet, 10 have an overweight or buy rating, eight have a hold rating and three have an underweight or sell rating.

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