On Wednesday, Barclays updated its outlook on United Continental (NASDAQ: UAL), raising the price target to $75 from the previous $66 while keeping an Overweight rating on the stock. The airline recently reported third-quarter earnings that surpassed expectations and provided guidance in line with consensus forecasts, which was particularly reassuring for investors after Delta reported weaker fourth-quarter demand last week.
Despite various challenges, including a technology outage, hurricane disruptions, and the discontinuation of certain long-haul Middle East routes, United managed to deliver higher-than-anticipated earnings for the quarter.
The airline's performance was likely aided by lower fuel costs, but investors are expected to welcome the consistent guidance range for the remainder of 2024. United's earnings guidance range, while not offering detailed revenue expectations, suggests stability amidst some market concerns about demand.
The company is expected to address potential travel slowdowns due to the U.S. election day and other factors in a call scheduled for tomorrow, along with discussing the solid performance in trans-Atlantic routes and improvements in Latin and Pacific regions for the fourth quarter.
Cost inflation was noted to be slightly higher in the third quarter due to lower capacity growth during the period, compounded by the impacts of the Crowdstrike incident and reduced international flights. However, an anticipated increase in capacity growth in the fourth quarter, with domestic flights expected to grow by approximately 8%, could help mitigate non-fuel unit cost inflation.
This increase might also affect unit revenue, which is currently projected to be flat in the fourth quarter, following a 1.5% decline in the third quarter.
United Continental has also announced a share repurchase authorization of $1.5 billion, which represents about 7% of the company's market cap. This move signals the board's confidence in United's growth strategy, which focuses on expanding its global network and offering differentiated premium travel products.
Despite recent share performance gains, with United's shares increasing by 69% since August compared to the S&P 500's 12% rise, the upcoming management commentary is expected to be crucial for the stock's short-term trajectory.
Nevertheless, Barclays analysts see substantial long-term value in United's shares as the airline continues to leverage business momentum with a dedicated management team executing an ambitious strategy.
In other recent news, United Airlines has announced a surge in Q4 profit expectations, surpassing average analyst forecasts. The company's adjusted profit is projected to range from $2.50 to $3 per share, a significant increase over the predicted $2.68 per share. This follows a strong Q3 performance where the airline reported adjusted earnings of $3.33 per share, exceeding the anticipated $3.17 per share.
In addition to this optimistic financial outlook, United Airlines has launched a $1.5 billion share buyback program, signaling its confidence in its financial health. This is the first buyback program since the onset of the COVID-19 pandemic and is seen as a response to positive domestic unit revenue figures for August and September.
The airline is also expected to comment on strong trans-Atlantic demand and holiday bookings during a call with analysts and investors. These are recent developments providing investors with insights into the current state of United Airlines.
InvestingPro Insights
United Continental's recent performance and Barclays' optimistic outlook are further supported by real-time data from InvestingPro. The airline's P/E ratio of 7.13 and adjusted P/E ratio of 6.67 for the last twelve months as of Q2 2024 indicate that the stock is trading at a relatively low earnings multiple, aligning with the InvestingPro Tip that UAL is "Trading at a low P/E ratio relative to near-term earnings growth."
The company's strong financial position is evident from its revenue of $55.63 billion over the last twelve months as of Q2 2024, with a healthy revenue growth of 9.34% during the same period. This solid performance is reflected in the stock's impressive price movements, with InvestingPro data showing a 62.03% price total return over the past year and a 54.34% return over the last six months.
InvestingPro Tips also highlight that 9 analysts have revised their earnings upwards for the upcoming period, suggesting growing confidence in United's future performance. This positive sentiment is further reinforced by the stock trading near its 52-week high, with the current price at 98.51% of its 52-week high.
For investors seeking more comprehensive insights, InvestingPro offers 16 additional tips for United Continental, providing a deeper understanding of the company's financial health and market position.
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