In a recent press release, United Airlines (NASDAQ: UAL) revised its second quarter and full year guidance due to an uptick in passenger bookings. The company received another round of payroll support aid (PSP-3) as tepid air travel demand continued to weigh on its finances. Despite a slowdown in the travel industry, consumer spending has been rising for goods & services business over the past few quarters. Notably, the shares of American Express, Mastercard, and Visa are trading at 10-15% above pre-Covid levels. Interestingly, the trend is observed across geographies and led by the United States. Per American Express’ earnings release, billed volumes for goods & services businesses surged by 8% (y-o-y) in the first quarter. We compare United Airlines historical stock performance with Mastercard and American Express to highlight rising consumer spending as a key indicator of an upside in UAL stock, UAL Stock Has 51% Chance Of A Decline Over The Next Month After Rising 6% In The Last 5 Days.
Payment volumes indicate strong spending growth
For the quarter ending in March, Visa and Mastercard reported 9.5% and 9.3% of annual network volume growth, respectively. The U.S. government’s stimulus package has been assisting consumer spending despite a macroeconomic slowdown and widespread job losses. Thus, the shares of payment companies including Visa, Mastercard, American Express, PayPal, and Square have been racing ahead this year. While passenger numbers at TSA checkpoints are 35% below 2019 levels, the high spending growth signals a strong rebound in travel demand as fears of new coronavirus variants are put to rest. Importantly, domestic travel demand is likely to get a boost by next quarter as three-quarters of the U.S. population will get vaccinated, according to Bloomberg.
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United stock looks fairly valued, but will investors overlook pandemic losses?
United Airlines stock has lost $7 billion in market capitalization from pre-Covid levels, which is slightly higher than $4 billion of operating cash outflow reported during the same period. The company strengthened its balance sheet with multiple debt and equity offerings to tackle any adverse pandemic scenario. However, the third phase of payroll support program (PSP-3) is a boon during this recovery phase. All airlines are required to suspend dividends and share repurchases until September 2022 and investors can only bet on strong travel demand to realize gains.
Do United’s peers offer better gains? United Airlines Stock Comparison With Peers summarizes how UAL compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.