Chicago-based United Airlines Holdings Inc. (UAL - Get Rating), through its subsidiaries, offers air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company transports people and cargo through its mainline and regional fleets.

UAL’s shares have declined 22.7% in price over the past six months and 16.5% over the past month due to the rising fears surrounding the newly discovered COVID-19 omicron variant. Governments worldwide are imposing tight guidelines, new lockdown measures, and travel restrictions to curb the spread of the new variant. This, in turn, is affecting the already struggling aviation industry.

While the industry was making its way steadily out of its pandemic blues, the new COVID-19 variant has threatened to stifle its comeback. In addition, UAL’s poor profitability could further raise investors’ concerns about the stock’s prospects and cause its share price to decline in the near term.

Here is what could influence UAL’s performance in the upcoming months:

Omicron Coronavirus Variant Could Dampen Growth

The emergence of the omicron variant has resulted in a slew of additional travel restrictions and, in some cases, outright bans, further complicating the already-beleaguered international travel. Airlines have started reporting lower bookings, executives are tweaking business travel plans, and a few organizations have canceled or downscaled events worldwide amid new government-mandated restrictions.

Poor Profitability

UAL’s 2.12 % trailing-12-months gross profit margin is 92.8% lower than the 29.6% industry average. Also, its ROA, ROC, and net income margin are negative 4.6%, 9.2%, and 16.2%, respectively. Furthermore, its cash from operations stood at  negative $159 million compared to the $222.76 million industry average.

POWR Ratings Reflect Uncertainty

UAL has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UAL has an F grade for Stability and a D for Momentum. The stock’s 1.48 beta is consistent with its  Stability grade. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $47.76 and $51.03, respectively, which justifies the Momentum grade.

The stock also has a C grade for Quality, which is in sync with the company’s poor profitability.

Of the 30 stocks in the F-rated Airlines industry, UAL is ranked #20.

Beyond what I have stated above, one  can view UAL ratings for Growth, Value, and Sentiment here.

Bottom Line

Based on the company’s weak profit margins, we think UAL is not strategically positioned to withstand the disruptions caused by the new coronavirus variant. In addition, the stock is currently trading below its 50-day and 200-day moving averages, indicating a downtrend. Because investors continue to remain concerned about the prospects of the airline industry, we think the stock is best avoided now.

How Does United Airlines Holdings Inc. (UAL) Stack Up Against its Peers?

While UAL has an overall D rating, one might want to consider its industry peer, SkyWest Inc. (SKYW - Get Rating), and Mesa Air Group Inc. (MESA - Get Rating), having an overall B (Buy) rating.

Note that MESA is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

UAL shares rose $1.46 (+3.32%) in premarket trading Tuesday. Year-to-date, UAL has gained 1.71%, versus a 23.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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