On Wednesday, United Airlines (NASDAQ:UAL) received a positive outlook from an analyst at Jefferies, who upgraded the stock from Hold to Buy and increased the price target to $65 from the previous $54.
The upgrade is based on several key factors that suggest an optimistic future for the airline. The analyst highlighted United Airlines' success in offering products that appeal to a wide range of customers, from premium to economy.
There has been a notable improvement in the company's domestic passenger revenue per available seat mile (PRASM), which is closing the gap with its competitor, Delta Air Lines (NYSE:DAL). Additionally, the airline is expected to benefit from upgauging and increased corporate travel.
Internationally, United Airlines is poised to harvest margins as concerns over peak profits subside. The company's management is also being recognized for their shareholder-friendly approach, with a focus on controlling costs excluding fuel (CASM-ex), which is projected to increase by 4.0% in 2024 and 1.5% in 2025.
From a financial perspective, the analyst forecasts that United Airlines will generate $5 billion in free cash flow (FCF) from 2024 to 2026, which represents a significant improvement compared to the same estimate a year ago. This comes after the airline has rationalized its capital expenditures to $7-9 billion per year.
Moreover, United Airlines is expected to provide further details on its strategic initiatives during the Fall Investor Day, which will introduce "United Next 2.0." This event could potentially provide additional insights into the airline's future plans and operational strategies.
InvestingPro Insights
Following the positive outlook from Jefferies, United Airlines (NASDAQ:UAL) also presents several compelling metrics that may interest investors. With a market capitalization of $16.65 billion and a remarkably low P/E ratio of 4.82 based on the last twelve months as of Q1 2024, the airline shows signs of being undervalued relative to its near-term earnings growth. Moreover, the PEG ratio, which is a measure of the stock's price relative to its earnings growth rate, stands at an attractive 0.16, suggesting that United Airlines could be a growth-at-a-reasonable-price (GARP) investment opportunity.
In addition to these financial metrics, United Airlines has seen a substantial 29.02% price uptick over the last six months, reflecting investor confidence in the company's trajectory. This is supported by the fact that 12 analysts have recently revised their earnings expectations upward for the upcoming period, indicating a consensus view of improving financial performance. For those interested in diving deeper into the company's prospects, there are additional InvestingPro Tips available, including analysis on the airline's debt burden and liquidity situation, which can be found at: https://www.investing.com/pro/UAL. For access to these insights, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a total of 11 additional tips for United Airlines.
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