United Continental (NASDAQ:UAL) reported its full-year results this week. As it exceeded the analysts’ estimates by a wide margin, it rallied 5% in after-hours trading. Nevertheless, despite this rally, the stock is still likely to offer high returns in the upcoming years.
Business overview
United smashed the analysts’ estimates in Q4, as its earnings per share exceeded the consensus by 23% ($2.41 vs. $1.96). The performance was impressive, particularly given that the U.S. airline fares fell 2.6% on an annual basis in December and had also fallen in November. The airline has beaten the analysts’ earnings-per-share estimates in 11 out of the last 12 quarters, so it has great performance momentum. It is also remarkable that the company raised its full-year guidance three times during the last year and managed to exceed its latest guidance despite a $2.4 B increase in its fuel costs.
The impressive performance in 2018 partly resulted from non-operating tailwinds, namely a significant decrease in the tax rate thanks to the tax reform and a 9% decrease in the share count. On the other hand, the earnings were also boosted by excellent operational performance. The company posted a new record in the total number of passengers while it also reported the fewest flight cancellations in its history.
Growth prospects
United introduced 93 new routes last year, more than any other U.S. airline. Moreover, its management expects to grow the earnings per share to $10.0-12.0 this year. The mid-point corresponds to a 20% increase over last year. Even better, management has confirmed that it is on track to achieve earnings per share of $11.0-13.0 next year. As the airline has exceeded the analysts’ estimates in almost every quarter in the last three years, its earnings are likely to exceed or end up in the high end of the above guidance.
