United Airlines Delivers Strong Q3 Performance and Upbeat Guidance

United Airlines stock (NASDAQ: UAL) has announced its Q3 earnings, showcasing revenues that matched expectations and earnings that exceeded them. The airline reported revenue of $14.8 billion and adjusted earnings of $3.33 per share, surpassing our expectations of $14.8 billion in revenue and $3.15 in earnings. This reflects an overall positive trend for the company. In this report, we delve into the performance of United Airlines, the key insights from its latest results, and its valuation.

United Airlines’ Q3 Results Breakdown

In Q3, United Airlines posted revenues of $14.8 billion, representing a 2.5% increase year-over-year. This growth was supported by an increase in seat capacity, which rose by 4.1%. However, there was a slight downturn in passenger revenue, which fell by 2% per seat mile. The airline’s adjusted pre-tax margin decreased to 9.7% from 10.8% in the same period last year. Despite a 13.2% drop in average fuel prices year-over-year, non-fuel operating costs continued to rise due to factors like higher wages and aircraft maintenance expenses. The adjusted earnings per share came in at $3.33, declining from $3.65 in Q3 of the previous year.

Future Outlook for United Airlines

Looking ahead, United Airlines anticipates fourth-quarter adjusted earnings per share to fall between $2.50 and $3.00, compared to the consensus estimate of $2.68. Overall, the airline reported a strong Q3 and provided favorable guidance for Q4. Additionally, United announced a $1.5 billion share repurchase program, reflecting confidence in its financial position.

Impact on UAL Stock and Valuation

The positive earnings report, coupled with a solid outlook and the share repurchase program, led UAL stock to surge more than 15% following the earnings announcement. We now estimate a valuation for United Airlines at $81 per share, indicating a potential upside of about 10% from the current price of around $73. This forecast hinges on an 8x price-to-earnings multiple for UAL and anticipated earnings of $10.29 per share on an adjusted basis for the full year 2024. The company’s guidance for Q4 suggests expected adjusted earnings per share for 2024 will range from $9.82 to $10.32.

UAL’s Performance Compared to Market Trends

This year, UAL has experienced a strong performance, with stock prices climbing 78%, significantly outpacing the broader S&P 500’s 22% gain. Historical data reveals that UAL’s annual returns have presented less volatility compared to the S&P 500 over the past three years. In contrast, the Trefis High Quality (HQ) Portfolio, which includes 30 carefully selected stocks, has shown a consistent track record of outperforming the S&P 500 each year during the same period. This strong performance stems from the HQ Portfolio’s characteristics, which often yield better returns at a lower risk than the benchmark index.

Comparative Insights into United Airlines and Its Peers

While United Airlines stock is positioned for further growth, it’s also beneficial to explore how its competitors measure up through various important metrics, detailed in our Peer Comparisons section.

[1] Returns as of 10/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.