Should You Pick United Airlines Stock After 10% Rise Following Q4 Beat?

UAL: United Airlines Holdings logo
United Airlines Holdings

United Airlines stock (NASDAQ: UAL) recently reported its Q4 results, with revenues and earnings above the street estimates. The company reported revenue of $13.6 billion, reflecting a 9.9% y-o-y growth and above the $13.5 billion street estimate. Its adjusted earnings of $2.00 per share were down 19% y-o-y but above the consensus estimate of $1.69 per share. In this note, we discuss United Airlines’ stock performance, key takeaways from its recent results, and valuation.

UAL stock has faced a slight decline of 4% from levels of $45 in early January 2021 to around $43 now, vs. an increase of about 30% 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, heavyweights in the industrial sector, including CAT, UNP, and GE, and even mega-cap 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, UAL stock looks attractive and will likely see higher levels over time. 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, higher than the $9.48 consensus estimate at the mid-point of the range. This has boded well for its stock, up around 12% since it reported the results.

United Airlines’ revenue of $13.6 billion in Q4 was up 9.9% 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 3.3%. 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.

Despite its recent rise, UAL stock looks attractive at $43, trading at just 0.3x sales, compared to the last five-year average of 0.5x. However, higher fuel prices, falling yields, and grounding of Boeing Max 9 aircraft remain some key risk factors in the near term.

While United Airlines stock can see higher levels, 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 Jan 2024
MTD [1]
Since start
of 2023 [1]
Total [2]
 UAL Return 4% 14% -41%
 S&P 500 Return 3% 28% 119%
 Trefis Reinforced Value Portfolio 0% 39% 612%

[1] Returns as of 1/25/2024
[2] Cumulative total returns since the end of 2016

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