As the Q4 earnings season unfolds, investors are mulling over the recent quarterly results from major airline giants, including United Airlines (UAL) and American Airlines (AAL). These industry behemoths, known for their extensive international reach, have captured the attention of investors, distinguishing themselves from regional carriers like Southwest Airlines (LUV) and Alaska Air Group (ALK), which also disclosed their Q4 results last week.
Despite formidable competition and a robust travel resurgence in Q4 2022, both American and United Airlines managed to exceed their quarterly revenue and profit expectations. In light of these developments, it’s time to evaluate whether it’s prudent to consider buying stocks from either of these leading airliners.
American Q4 Performance
Of the two, American Airlines delivered an outstanding performance in Q4, surging past market expectations. The company reported Q4 earnings of $0.29 per share, eclipsing the Zacks Consensus estimate of $0.06 by a whopping 383%. Additionally, its quarterly sales of $13.06 billion slightly surpassed the anticipated $13.02 billion.
American Airlines has now outperformed earnings forecasts for six consecutive quarters and displayed an impressive average earnings surprise of 119% over its last four quarterly reports. Notably, the company’s annual earnings showcased a remarkable rebound, with EPS skyrocketing 430% to $2.65 per share for fiscal 2023 compared to $0.50 per share in 2022. Furthermore, American achieved a record-breaking year in revenue, with total sales climbing 8% year over year to $52.78 billion.
United Q4 Performance
Similarly, United Airlines reported a formidable performance in the fourth quarter, with earnings of $2.00 per share surpassing estimates of $1.61 per share by 24%. The company’s sales of $13.62 billion also exceeded forecasts of $13.54 billion. United has consistently outpaced earnings expectations for six consecutive quarters and recorded an average earnings surprise of 18% over its last four quarterly reports.
For fiscal 2023, United Airlines witnessed a substantial surge in annual earnings, soaring 299% to $10.05 per share compared to $2.52 per share in 2022. Further accentuating its strong rebound, the company experienced a 19% uptick in total sales, amounting to $53.71 billion.
Attractive Valuations
Despite American and United’s stock prices declining by 9% and 13% respectively over the past year, it is worth noting that both companies are currently positioned as significantly undervalued assets. Notably, they trade at substantial discounts in comparison to the Zacks Transportation-Airline Industry average of 10.3X forward earnings. American Airlines is valued at 6.9X, while United Airlines is priced at just 4.3X, underscoring their compelling undervaluation. These valuations stand in stark contrast to many regional carriers, with Southwest Airlines trading at 18.9X forward earnings and Alaska Air at 8X.
Final Thoughts
The robust Q4 results unequivocally underscore the undervaluation of American Airlines and United Airlines stocks. Despite the traditionally weaker air travel season in the first quarter, potential investors may find solace in the fact that both stocks hold a Zacks Rank #3 (Hold). This presents a compelling case that they could potentially yield long-term rewards from their current price levels.
References:
- United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
- American Airlines Group Inc. (AAL) : Free Stock Analysis Report
- Southwest Airlines Co. (LUV) : Free Stock Analysis Report
- Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
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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.
