Barrington Research’s Gary Prestopino who had led the bulls cut the target price for UP’s stock to $16 from $20. He moved his advice to market perform, which eTrade equates to hold.
Prestopino wrote, “Based on the anticipated diminishment of Wheels Up’s adjusted contribution margin and higher anticipated adjusted EBITDA losses over the next several quarters, we believe the stock will be stuck in a trading range until an improvement in financial metrics begins to manifest itself. Although we still believe in the long-term potential of the company to enhance shareholder value, we believe the stock over the next six months will be challenged to offer relative outperformance. As a result, we are moving to a MARKET PERFORM investment rating on the shares. Our comparative TEV/revenue valuation still reflects a potential $16 price target for the shares on a two-year basis.”
When he came out with the most aggressive target for UP’s stock price over the summer, Prestopino warned, “Can they hit their projections? Can they improve efficiency? We’ll be watching the execution.”
Michael J. Bellisario of R.W. Baird, said, “The 3Q21 update from Wheels Up was disappointing and highlighted nearly all the logistical challenges and cost pressures within the business. Expenses are forecasted to remain elevated for several quarters, and management appears to have hit the reset button, in our opinion. With shares down 20% today, investors are likely questioning the scalability of the model, the longer-term margin/earnings profile, and the company’s path to profitability. Our estimates and price target are declining, and we remain on the sidelines given the significant reduction in earnings visibility.”
When he initiated coverage in July, Bellisario wrote, “We believe the business can perform well over the near term given positive fundamental tailwinds, and we would become constructive at a more attractive valuation, if organic growth proves to be more sustainable, and/or if earnings move higher as longer-term financial targets appear more achievable.”
Demand for private jets has surged to record levels helping Wheels Up post record revenues. Supply chain and labor issues, however, increased costs and created service issues across the industry.
Morgan Stanley’s Brian Nowak started the bad news before the earnings call. He questioned how much growth opportunity Wheels Up has with low single-digit millionaires who figure prominently in its democratization strategy.
Three analysts still rate the stock as a buy. UP closed today at $5.50.