Why United Airlines shares are down 7% despite massive Boeing deal

A big day for United Airlines was overshadowed by inflation data, opening up what some analysts see as a potential buying opportunity in the stock.

Shares of the airline fell nearly 7% yesterday despite huge news that United would buy 200 787 Dreamliners from Boeing. Shares fell another 1% in premarket trading Wednesday and the company’s ticker page remains among the most visited on Yahoo Finance.

“The decline is likely in response to the CPI [Consumer Price Index] report that showed US airfares fell 3% from October to November,” CFRA analyst Colin Scarola wrote in a note moments after the latest CPI reading. “However, the airfare data CPIs have not historically been representative of UAL’s price trends. For example, CPI data showed that US airfares decreased 8% Q2 through Q3, but actual UAL prices decreased only 1% Q/Q in Q3. Also, some moderation in airfares is to be expected given how much fuel prices have fallen recently, allowing airlines to charge less while increasing profitability. Specifically, UAL forecasts an average fuel price of $3.61 for the fourth quarter, but jet fuel prices to date are $2.70 lower (-25% vs. forecast).”

Rival airlines such as Delta, Jetblue and Southwest also posted big losses on Tuesday.

Scarola added that the sell-off was exaggerated and reaffirmed a Buy rating on United’s shares. He also raised his earnings estimates on United for 2022, 2023 and 2024 and raised the price target to $60 from $59.

United’s stock move came as the airline made a big play to improve profitability over the next decade.

Boeing Commercial Airplanes CEO Stan Deal speaks during a joint news event with United Airlines at the Boeing manufacturing plant in North Charleston, South Carolina, Dec. 13, 2022. - Betting on strong demand for international travel, United Airlines on Tuesday said unveiled an order for 100 new Boeing 787 Dreamliners with options for an additional 100 jets.  (Photo by Logan Cyrus/AFP) (Photo by LOGAN CYRUS/AFP via Getty Images)

Stan Deal, CEO of Boeing Commercial Airplanes, speaks during a joint press event with United Airlines at the Boeing manufacturing plant in North Charleston, South Carolina on Dec. 13, 2022. (Photo by Logan Cyrus/AFP)

The carrier announced Tuesday that it has placed an order for 100 of Boeing’s top-of-the-line 787 Dreamliners with the option to purchase an additional 100. In a press release, United described the purchase as “the largest widebody order from a carrier in commercial aviation history” and said it expects to receive delivery between 2024 and 2032.

United also exercised options to purchase 44 Boeing 737 Maxes for delivery between 2024 and 2026, adding that the orders will lead it to hire 15,000 new employees in 2023.

“We’re setting travel demand records every month,” United CEO Scott Kirby said on Yahoo Finance Live, describing the possibility of adding more planes as “a gamble that’s an option on a really strong recovery, which we think is what is about to happen, but it’s not a requirement if the recovery is less robust than we expect.”

And while Kirby said that “if you squint… [you could] look at what I would call pre-recession behavior,” he reiterated that this year’s ongoing travel recovery from the COVID-19 pandemic has continued and “demand is really strong for us right now.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and go LinkedIn.

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