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UAL stock trades at a discount with a forward 12-month P/S of 0.52X compared with the industry’s 1.18X.
Image Source: Zacks Investment Research
Its valuation is cheaper than that of fellow industry players like Delta Air Lines (DAL - Free Report) and Southwest Airlines (LUV - Free Report) , which are attractive to investors.
Now, the question is whether it is worth buying the stock at current prices. Let us dig deeper to find out.
Upbeat Air Travel Demand Boosts UAL Stock
The stronger-than-expected recovery of air travel demand following the pandemic has been supporting growth of airline stocks like United Airlines. While air travel demand is particularly strong on the leisure front, it is heartening to note that business demand has made an impressive comeback.
UAL’s ability to capitalize on strong corporate travel volumes and premium leisure demand serves it well as the focus on these higher-yield segments aids growth. Driven by strong demand, corporate revenues increased 13% year over year in September. In the third quarter, premium revenues were up 5% year over year and revenues from Basic Economy were up 20% year over year. Owing to buoyant air travel demand, United Airlines posted a significant year-over-year increase (5.7%) in revenues during the first nine months of 2024. This year-over-year increase in the top line was driven by a 5.3% rise in passenger revenues (accounting for 90.9% of the top line).
The Thanksgiving holiday period is likely to have attracted substantial traffic with UAL expecting the same to be the busiest ever. Per UAL’s expectations, 6.2 million passengers were transported by its flights between Nov. 21 and Dec. 3. Per the forecast, nearly 480,000 people per day flew on UAL flights — about 30,000 more people per day than last year.
Driven by the uptick in bookings to European destinations, UAL expects to carry 25 million passengers during the holiday period, up 6% from the year-ago level. In the event of this expectation materializing, 2024 would represent the busiest holiday period yet for UAL. We remind investors that UAL had a busy summer this year as well, carrying a record 48 million passengers.
Falling Oil Price Represents Another Positive for UAL Stock
The southward movement of oil price bodes well for the bottom-line growth of airlines, including UAL. This is because fuel expenses are a significant input cost for the aviation space. Notably, oil prices declined 14% in the July-September period, mainly due to weakening global demand.
China's economy, the world’s largest oil importer, struggled with a slowdown in manufacturing, shrinking for the fifth consecutive month by September. In third-quarter 2024, expenses on aircraft fuel at UAL decreased 10.4% year over year to $3 billion. Average fuel price per gallon (adjusted) decreased to $2.56 from $2.95 a year ago. Average fuel price per gallon decreased to $2.73 in the first nine months of 2024 from $2.97 in the first nine months of 2023.
UAL’s Impressive Price Performance
Driven by upbeat air travel and low fuel costs, UAL shares have outperformed its industry and fellow-airline operators American Airlines (AAL - Free Report) and Delta over the past three months.
Three-Month Price Comparison
Image Source: Zacks Investment Research
More Reasons to be Bullish on UAL Stock
On a shareholder-friendly note, in October, UAL’s management announced a $1.5 billion share buyback plan. This was the first buyback program announced by UAL since suspending share repurchases during the pandemic.
The restrictions, under the CARES Act, prohibited airlines from paying dividends or buying back shares till Sept. 30, 2022. The new buyback program highlights UAL’s financial strength. It aims to commence execution of the repurchase program from the ongoing quarter and throughout 2025. This program will be funded by free cash flow generation as the carrier expects its profitability to improve.
United Airlines’ environment-friendly approach is commendable as well. UAL aims to achieve net-zero emissions by 2050 without relying on traditional carbon offsets. United Airlines’ cost-management strategy is praiseworthy as well.
UAL’s expansion strategy, coupled with a focus on premium demand, serves it well and positions the Chicago-based carrier to capture a larger slice of the recovering travel market. Under its expansion strategy, UAL intends to offer nearly 60 nonstop flights each day from its hubs in the United States to Europe in November and December to meet the demand swell. This offering by UAL is more than any other U.S. airline.
Donald Trump's re-election is a positive for the airline industry and is expected to lead to a return to the pro-business stance that characterized his first term. The anticipation of a more relaxed regulatory environment under Trump's leadership is likely to lead to lesser scrutiny. This is expected to boost mergers and acquisitions in the industry. More mergers in the airline industry are expected to cut route capacity, which is expected to make airlines more profitable.
Earnings Estimate Revision Favoring UAL Stock
Reflecting the positive sentiment around UAL, the Zacks Consensus Estimate for earnings per share for the fourth quarter of 2024, as well as the full year and next year, has seen upward revisions over the past 60 days. The positive revision trend reflects confidence in UAL's ability to deliver strong financial performances.
Image Source: Zacks Investment Research
Final Verdict: Buy UAL Stock Now
UAL stock, as highlighted throughout the write-up, presents a compelling investment opportunity now. This Zacks Rank #2 (Buy) undervalued stock is an ideal candidate for addition to one’s portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is UAL's Cheap Valuation an Opportunity to Invest in the Stock?
United Airlines (UAL - Free Report) shares are among the cheaper ones in the Zacks Transportation—Airline industry. The company has a Value Score of A presently.
UAL stock trades at a discount with a forward 12-month P/S of 0.52X compared with the industry’s 1.18X.
Its valuation is cheaper than that of fellow industry players like Delta Air Lines (DAL - Free Report) and Southwest Airlines (LUV - Free Report) , which are attractive to investors.
Now, the question is whether it is worth buying the stock at current prices. Let us dig deeper to find out.
Upbeat Air Travel Demand Boosts UAL Stock
The stronger-than-expected recovery of air travel demand following the pandemic has been supporting growth of airline stocks like United Airlines. While air travel demand is particularly strong on the leisure front, it is heartening to note that business demand has made an impressive comeback.
UAL’s ability to capitalize on strong corporate travel volumes and premium leisure demand serves it well as the focus on these higher-yield segments aids growth. Driven by strong demand, corporate revenues increased 13% year over year in September. In the third quarter, premium revenues were up 5% year over year and revenues from Basic Economy were up 20% year over year. Owing to buoyant air travel demand, United Airlines posted a significant year-over-year increase (5.7%) in revenues during the first nine months of 2024. This year-over-year increase in the top line was driven by a 5.3% rise in passenger revenues (accounting for 90.9% of the top line).
The Thanksgiving holiday period is likely to have attracted substantial traffic with UAL expecting the same to be the busiest ever. Per UAL’s expectations, 6.2 million passengers were transported by its flights between Nov. 21 and Dec. 3. Per the forecast, nearly 480,000 people per day flew on UAL flights — about 30,000 more people per day than last year.
Driven by the uptick in bookings to European destinations, UAL expects to carry 25 million passengers during the holiday period, up 6% from the year-ago level. In the event of this expectation materializing, 2024 would represent the busiest holiday period yet for UAL. We remind investors that UAL had a busy summer this year as well, carrying a record 48 million passengers.
Falling Oil Price Represents Another Positive for UAL Stock
The southward movement of oil price bodes well for the bottom-line growth of airlines, including UAL. This is because fuel expenses are a significant input cost for the aviation space. Notably, oil prices declined 14% in the July-September period, mainly due to weakening global demand.
China's economy, the world’s largest oil importer, struggled with a slowdown in manufacturing, shrinking for the fifth consecutive month by September. In third-quarter 2024, expenses on aircraft fuel at UAL decreased 10.4% year over year to $3 billion. Average fuel price per gallon (adjusted) decreased to $2.56 from $2.95 a year ago. Average fuel price per gallon decreased to $2.73 in the first nine months of 2024 from $2.97 in the first nine months of 2023.
UAL’s Impressive Price Performance
Driven by upbeat air travel and low fuel costs, UAL shares have outperformed its industry and fellow-airline operators American Airlines (AAL - Free Report) and Delta over the past three months.
Three-Month Price Comparison
More Reasons to be Bullish on UAL Stock
On a shareholder-friendly note, in October, UAL’s management announced a $1.5 billion share buyback plan. This was the first buyback program announced by UAL since suspending share repurchases during the pandemic.
The restrictions, under the CARES Act, prohibited airlines from paying dividends or buying back shares till Sept. 30, 2022. The new buyback program highlights UAL’s financial strength. It aims to commence execution of the repurchase program from the ongoing quarter and throughout 2025. This program will be funded by free cash flow generation as the carrier expects its profitability to improve.
United Airlines’ environment-friendly approach is commendable as well. UAL aims to achieve net-zero emissions by 2050 without relying on traditional carbon offsets. United Airlines’ cost-management strategy is praiseworthy as well.
UAL’s expansion strategy, coupled with a focus on premium demand, serves it well and positions the Chicago-based carrier to capture a larger slice of the recovering travel market. Under its expansion strategy, UAL intends to offer nearly 60 nonstop flights each day from its hubs in the United States to Europe in November and December to meet the demand swell. This offering by UAL is more than any other U.S. airline.
Donald Trump's re-election is a positive for the airline industry and is expected to lead to a return to the pro-business stance that characterized his first term. The anticipation of a more relaxed regulatory environment under Trump's leadership is likely to lead to lesser scrutiny. This is expected to boost mergers and acquisitions in the industry. More mergers in the airline industry are expected to cut route capacity, which is expected to make airlines more profitable.
Earnings Estimate Revision Favoring UAL Stock
Reflecting the positive sentiment around UAL, the Zacks Consensus Estimate for earnings per share for the fourth quarter of 2024, as well as the full year and next year, has seen upward revisions over the past 60 days. The positive revision trend reflects confidence in UAL's ability to deliver strong financial performances.
Final Verdict: Buy UAL Stock Now
UAL stock, as highlighted throughout the write-up, presents a compelling investment opportunity now. This Zacks Rank #2 (Buy) undervalued stock is an ideal candidate for addition to one’s portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.