United Airlines (NASDAQ:UAL) has thoroughly outpaced the broader stock market over the last year, posting a 12-month return of over 70% on A+ financials and record flight volumes.
When a stock increases this dramatically, it’s tempting to think that it’s too late for new investors to buy and still see decent returns.
In United’s case, however, there could still be room left for appreciation. Is it too late to buy United Airlines, or is the stock still an appealing investment today?
United Top & Bottom Line Growth Persist
United Airlines has been able to deliver 15 consecutive quarters of revenue growth after a period of severe disruption in 2020.
Although that growth has slowed to single-digit rates, management is still delivering appreciably higher revenues than in the 2019 fiscal year and before. Earnings growth has been slightly choppier, but UAL has regained much of the ground it lost during the pandemic and is now earning close to what it did in 2018 and 2019 on a per-share basis.
United’s recent earnings report put the excellent fundamentals on display in a major way. 2024 saw the most flights and passengers in the company’s entire history. Q4 profits reached a record high, and the company ended the year with adjusted EPS of $10.61, near the top end of the full-year guidance it had previously provided.
For the full year, United was able to generate net income of $3.1 billion and free cash flow of $3.4 billion. Management announced eight new international routes in Q4. This added to the 30 new routes it had already introduced during the year.
Like most airlines, United tends to carry a fairly high debt load but the leadership team has been working on shoring up its finances over the past couple of years. Debt has decreased from an all-time high of $37.5 billion in 2021 to just over $25 billion at the end of 2024.
Though long-term debt remains far above pre-pandemic levels, it’s positive to see that they have been able to make so much progress on clearing its debts as business operations have improved.
Where Are We in the Airline Cycle?
The airline business is infamously cyclical, which is something investors must take into account whenever looking at an airline stock. The combination of very high fixed costs and reliance on consumer travel demand causes airlines like United to go through periods of higher and lower earnings. While this certainly doesn’t rule airline stocks out as good investments, the airline business cycle is a good predictor of what we might be when examining United.
On the demand side, the airline industry looks to be in for a good 2025. Passenger counts are once again expected to surpass pre-2020 levels, likely resulting in another year of revenue growth.
Demand for consumer travel will likely be complemented by an estimated 4% growth in business travel spending as companies gradually return to normal in-person travel.
Lower fuel prices this year are set to be a tailwind and current estimates forecast that the average cost of jet fuel this year will settle around $87 per barrel, below the low point of 2024. This reduction in fuel costs is broadly expected to persist over the coming years because higher American energy production has been a hallmark policy of the second Trump administration.
With all of this said, the next set of problems for the industry could already be on the horizon. Economists are increasingly concerned that a moderate period of stagflation could set in as the effects of a weaker job market and inflation fueled by new tariffs take their toll on the economy. Vacation travel demand is going to take a hit if they’re right.
At this point, it seems that the airline industry is still in an upward trajectory on the business cycle, but investors need to be on the lookout for paying too much for airline stocks if the odds of a recession start to escalate quickly.
UAL’s Valuation Leaves Room for Upside
With a P/E ratio of only 8.5 and a price-to-sales ratio of 0.5, United Airlines appears to be a decent deal for value investors.
The stock also trades at a fairly modest 7.0 multiple to cash flow, adding further weight to its value argument.
While UAL has traded mostly at P/Es of 10 or less for several years, this still gives investors room to see substantial returns if the airline can keep its earnings growing.
This potential is strongly reflected in analyst price forecasts. The median target price for UAL is $122.15, more than 50% higher than the last price of $78.91. This rather high price target neatly explains the fact that 15 of the 16 analysts covering the stock rate it as a buy at the moment.
Is it Too Late to Buy United Airlines Stock?
With a sturdy balance sheet, good prospects for at least the rest of this year and a valuation that leaves considerable upside potential, UAL is a Buy.
Although investors who don’t already own the stock have obviously missed out on the extremely good gains of the past year, there are decent reasons to believe that it’s not too late to buy UAL for forward returns.
Keep in the back of your mind that the cyclical nature of the airline business means that eye-popping numbers almost certainly won’t last forever.
As a final aside, Peter Lynch spotlighted that cyclical stocks worked quite differently in terms of valuation than most investments, making them more difficult to gauge. So, investors buying UAL or other airline stocks today need to be more braced for volatility in exchange for the potential of impressive returns than most if non-cyclical stocks are explored.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
