Citi: ‘United Airlines is more likely to surprise people on the upside’

Shares of the United Airlines Holdings Inc (NASDAQ: UAL) are roughly flat for the year, but a Citi analyst is convinced “revenge travel” will result in a significant upside for the stock moving forward.

The bull case for United Airlines stock

According to Stephen Trent, the pent-up demand after COVID-19 restrictions is strong enough to offset the ongoing surge in prices. This morning on CNBC’s “Squawk Box”, he said:

At the same that we’re seeing prices rising, we’re also seeing volume improving because of the pent-up demand. Part of it is also on some managed business travel coming back. So, that’s helping weighted average fares. But the consumer is still paying up.

Citi’s proprietary survey forecasts passenger revenue in June and July will beat 2019 levels by double digits. United Airlines stock has already recovered nearly 40% from its March low.

United Airlines raised its guidance for Q2

Last month, United Airlines raised its guidance for the current fiscal quarter. It now expects double-digit EBIT margins in Q2. Speaking with CNBC’s Andrew Ross Sorkin, the analyst added:

Airlines don’t want to overpromise for the busy summer season and will be conservative in terms of capacity. So, I think the margin story is alive. So, we have a buy rating on United Airlines, which is more likely to surprise people on the upside.

In late April, however, the Chicago-headquartered air carrier reported weaker-than-expected results for its fiscal first quarter. Wall Street, on average, sees a 35% upside in UAL from here.