Will United Airlines Stock Continue To See Higher Levels After A 20% Rise Post Upbeat Q1?

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UAL
United Airlines Holdings

United Airlines stock (NASDAQ: UAL) recently reported its Q1 results, with revenues meeting and earnings above our estimates. The company reported revenue of $12.5 billion and an adjusted loss of $0.15 per share, compared to our estimates of $12.5 billion and $(0.45), respectively. In this note, we discuss United Airlines’ stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at its stock performance. UAL stock has witnessed gains of 10% from levels of $45 in early January 2021 to around $50 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the increase in UAL stock has been far from consistent. 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, UAL stock looks attractive and will likely see higher levels over time. We estimate United Airlines’ Valuation to be $60 per share, reflecting over 15% upside from its current levels of $51.

United Airlines’ revenue of $12.5 billion in Q1 was up 9.7% y-o-y. The company reported a 9% rise in available seat miles, while the passenger revenue per available seat mile was up 1%. The company saw its adjusted pre-tax margin improve to -0.6% in Q1 from -2.3% in the prior-year quarter. The company’s bottom line stood at $(0.15) on an adjusted basis, versus $(0.63) in Q1’23.

The company reported a 13.5% y-o-y decline in average fuel cost per gallon, bolstering its bottom line. The average fuel costs came in lower sequentially, as well. The company’s results include a $200 million impact from the grounding of Boeing 737 MAX aircraft in January this year. Looking forward, United Airlines expects its Q2 adjusted EPS to be in the range of $3.75 and $4.25, while it maintains a $9 to $11 range for the full-year 2024. The Q2 estimates are higher than the average consensus estimate of $3.70. Overall, United Airlines reported a solid Q1 and strong Q2 guidance. This has boded well with the investors, evident from a 20% rise in its stock in the last five days. Despite its recent rise, UAL stock looks like it has more room for growth. At its current levels of around $50, it trades at 0.3x revenues, versus 0.5x average over the last five years. Our United Airlines (UAL) Valuation Ratios dashboard has more details.

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 Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 UAL Return 2% 18% -33%
 S&P 500 Return -4% 5% 124%
 Trefis Reinforced Value Portfolio -6% 0% 612%

[1] Returns as of 4/18/2024
[2] Cumulative total returns since the end of 2016

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