Last Tuesday, on Oct. 15, United Airlines (UAL – Free Report) reported strong third-quarter 2024 results, driven by upbeat air travel demand and low fuel prices. This Chicago-based company announced a $1.5 billion share buyback plan, highlighting its pro-shareholder approach. This was the first buyback program announced by UAL since suspending share repurchases during the Covid-19 pandemic. The earnings outlook issued by the company for the December quarter also looks promising.
UAL shares have gained more than 15% since Oct. 15, touching a 52-week high of $74.95 on Oct. 18.
Highlights of Q3 Earnings
United Airlines reported third-quarter 2024 earnings per share (excluding 43 cents from non-recurring items) of $3.33, which surpassed the Zacks Consensus Estimate of $3.10.
Operating revenues of $14.84 billion beat the Zacks Consensus Estimate of $14.76 billion. The top line increased 2.5% year over year. This was driven by a 1.6% rise in passenger revenues (which accounted for 91.3% of the top line) to $13.56 billion. Almost 45,559 passengers traveled on UAL flights in the third quarter, up 2.7% year over year. Average aircraft fuel price per gallon fell 13.2% to $2.56.
Reflecting improved pricing power, domestic unit revenues were positive year over year in August and September. The new buyback program highlights UAL’s financial bliss. Last month, another airline heavyweight Southwest Airlines (LUV – Free Report) announced a share buyback plan worth $2.5 billion. These announcements are reflective of airlines’ pro-shareholder approach and improved financial status post-COVID-19.
UAL expects fourth-quarter 2024 adjusted earnings per share in the $2.5-$3 band. The mid-point of the guided range (i.e. $2.75) is above the actual figure of $2 reported in fourth-quarter 2023.
United Airlines is the second S&P 500 member in the Zacks Airline industry after Delta Air Lines (DAL – Free Report) to report third-quarter results.
Favorable Earnings Estimate Revisions for UAL Post Q3
Owing to the strong results delivered by UAL in the third quarter of 2024, earnings estimates for the current quarter as well as the current year have been revised upward over the past seven days, showing that analysts are optimistic about this group’s earnings growth potential.
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Strong Price Performance So Far
UAL stock’s upsurge is not limited to post third-quarter earnings release. Shares of UAL have performed handsomely since the beginning of 2024, gaining 79.7% year to date. Shares of United Airlines have outperformed its industry and the S&P 500 index year to date.
YTD Price Comparison
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Factors Working in Favor of UAL
Strong passenger volumes bode well for UAL. While air travel demand is particularly strong on the leisure front, business travel has also made an encouraging comeback. Driven by the air travel demand strength, UAL’s top line increased 19.5% year over year in the first nine months of 2024. This was driven by a 22.4% rise in passenger revenues.
From a valuation perspective, UAL is trading at a discount compared to the industry, going by the forward 12-month price-to-sales ratio. The reading is also below its median over the last five years. The company has a Value Score of A.
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Headwinds Confronting UAL Stock
The northward movement in operating expenses is hurting United Airlines’ bottom line, challenging its financial stability. In the first nine months of 2024, total operating expenses rose 16.2% year over year to $49.5 billion. The surge in operating expenses was primarily caused by an increase in labor costs. Expenses on wages and benefits rose 29% in the same time.
We are also concerned about its high debt levels. The company’s times interest earned ratio of 2.9 at 2023-end compared unfavorably with the industry’s ratio of 4.6.
Long-Term Debt to Capitalization
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Final Thoughts
For long-term investors, a single quarter’s results are not so important. They would rather base their investment decision on the underlying fundamentals. We can safely conclude that despite the impressive third-quarter results, investors should refrain from rushing to buy UAL now as it is facing quite a few challenges. Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested for solid long-term prospects. The stock’s Zacks Rank #3 (Hold) supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
