Should You Pick United Airlines Stock Ahead of Q1 Results?

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United Airlines Holdings

United Airlines (NASDAQ: UAL) will report its Q1 2024 results on Wednesday, April 17. We expect the company’s revenues to come in at $12.4 billion, marginally below the consensus estimate of $12.5 billion. This would mark year-over-year growth of about 8%. The bottom line is likely to come in at $(0.45) on a per-share and adjusted basis, slightly above the $(0.54) consensus estimate. Although we expect United Airlines to post mixed results in Q1, we believe there is ample room for its stock to grow from its current levels of under $45.  See our interactive dashboard analysis on United Airlines Earnings Preview for more details on how United Airlines’ revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive United Airlines’ results?

Firstly, let us look at UAL stock performance in recent years. It has seen little change, moving slightly from levels of $45 in early January 2021 to around $45 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. Overall, the performance of UAL stock with respect to the index has been lackluster. Returns for the stock were 1% in 2021, -14% in 2022, and 9% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UAL underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including CAT, GE, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UAL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think UAL stock is attractive. We estimate United Airlines’ Valuation to be $60 per share, reflecting a nearly 40% upside from its current levels of $43. Our forecast is based on a 6x P/E multiple for UAL and expected earnings of $10.48 on a per-share and adjusted basis for the full year 2024. The company has guided its adjusted earnings per share to be in the range of $9.00 and $11.00.

Coming to the latest quarter, the company will likely continue to benefit from the robust travel demand. However, the grounding of Boeing 737 MAX earlier in January is likely to weigh on its overall performance. The airline saw multiple safety related incidents earlier this year, which led to the Federal Aviation Administration (FAA) initiating a probe. This has impacted its overall operations, including a delay in starting a couple of new international routes. [1]

Looking at the previous quarter, United Airlines’ revenues of $13.6 billion were up 10% y-o-y. The company reported a 15% rise in available seat miles, while the load factor was down 290 bps, and passenger revenue per available seat mile also declined by 3%. The company saw its adjusted pre-tax margin fall to 6.2% from 9.0% in the prior-year quarter. Higher revenues offset by margin contraction led to a 19% y-o-y fall in the bottom line to $2.00 on a per-share and adjusted basis in Q4’23.

The average fuel price per gallon declined 12% y-o-y to $3.13 for United Airlines in the previous quarter. However, this metric may rise sequentially due to higher average fuel prices in Q1 weighing on the overall pre-tax margin. The average U.S. Gulf Coast Kerosene Jet fuel price per gallon rose from $2.39 (end of December last year) to $2.59 toward the end of March 2024.

While United Airlines stock looks undervalued, check out how other United Airlines Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

 Returns Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 UAL Return -9% 5% -40%
 S&P 500 Return -1% 9% 133%
 Trefis Reinforced Value Portfolio -1% 5% 648%

[1] Returns as of 4/10/2024
[2] Cumulative total returns since the end of 2016

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Notes:
  1. United Airlines delays flights on two new routes amid FAA safety probe, David Shepardson, April 9, 2024, Reuters []