Financial Pros Stocking Up on This Airline - InvestingChannel

Financial Pros Stocking Up on This Airline

Proprietary Data Insights

Financial Pros’ Top Airline Stock Searches in the Last Month

#1‘United Airlines84
#2‘Delta Air Lines79
#3‘Jetblue Airways68
#4‘Southwest Airlines37
#5‘Allegiant Travel36
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Financial Pros Stocking Up on This Airline

Airline stocks are cheaper than they’ve ever been.

No wonder financial pros increased their searches by 50% over the last week.

Topping the list was United Airlines (UAL).

Arguably one of the least liked before the pandemic, this company is making a lot of the right moves to position itself as a global leader in the airline industry.

Take notes because this could be one of our top plays to close out 2023.

United Airlines’ Business

United Airlines owns more aircraft than any other airline in the world.

It’s a titan in the aviation industry, boasting a legacy that traces back to 1926. 

With 79 destinations in the U.S. and 111 internationally in 74 countries worldwide, UAL excels in linking people and locales globally, propelled by a mission to bridge distances and foster unity through an expansive offering of passenger and cargo services, catering to over 144 million travelers annually. 

United segments its revenue into two areas:

  • Mainline (70% of total revenues) – Flights operated by United Airlines on aircraft with 76 seats or more capacity, accounting for the lion’s share of the company’s revenue stream.
  • Regional (30% of total revenues) – Comprises flights executed by partner carriers under capacity purchase agreements, employing aircraft with fewer than 76 seats. This segment is instrumental in feeding traffic to the Mainline operations.

After post-pandemic revenge travel died down, airlines struggled to control higher fuel and labor costs.

However, UAL’s third quarter of 2023 unveiled a remarkable 12.5% climb in revenue to $14.5 billion, edging past the anticipated $14.4 billion mark. 

Earnings followed suit, with an encouraging 30% surge to $3.65 per share, overshadowing the forecasted $3.38. 

More importantly, operational cash flow thrived at $1.8 billion as UAL’s diligent debt reduction strategy bore fruit, trimming net liabilities by $1.6 billion.

Passenger revenue

Source: UAL Q3 Earnings release

Other notable highlights include:

  • Capacity up 15.7% compared to third-quarter 2022.
  • The cost per available seat mile (CASM) was down 3.6% compared to Q3 2022.
  • Passenger Revenue per seat mile (PRASM)
  • Total Revenue per seat mile (TRASM) was down 2.8% compared to Q3 2022.
  • Flew over 436 domestic markets on mainline aircraft this quarter – up from 367 in Q3 2019. 



Source: Stock Analysis

Covid hit the airline industry hard, and United was no exception.

Revenues plunged, forcing United to issue $17.1 billion in debt, doubling their total.

Since then, they’ve paid off $5.9 billion, with plans to continue at around $3 billion per year.

Inflation allowed airlines to raise ticket prices, improving gross margins. Yet, those same forces increased fuel and labor expenses, putting profitability roughly where it was before the pandemic.

On the plus side, operating cash flow is the highest its ever been, allowing the company to spend $7.6 billion in Capex to upgrade and expand its fleet.



Source: Seeking Alpha

Airlines as a group trade at historically discounted levels.

United is the cheapest, with a price-to-earnings at 4.3x and price-to-cash flow at 1.4x. However, Delta (DAL) looks pretty appetizing at just 6.4x forward earnings and 3.0x cash.



Source: Seeking Alpha

You’ll notice this graph doesn’t include growth metrics beyond revenues.

Well, none of the airlines were profitable in 2020 or 2021, with only a couple in 2022. So, the multi-year growth numbers on earnings and other profitability measures aren’t relevant.

That said, the revenue growth has been fantastic for the companies in the last few years.

And the forward growth numbers for UAL at 32.0% are phenomenal.



Source: Seeking Alpha

UAL tops the list in gross margins. However, its EBIT margin is second to Allegiant (ALGT), the discount airline.

And UAL’s net income margin is slightly behind ALGT and DAL.

However, it’s pumping out more cash from operations than its peers. With solid revenue growth predictions, that should only continue.


Our Opinion 10/10

At these prices, United Airlines is a steal.

Even a recession isn’t going to hold the company back for very long.

It’s paying down its debt, increasing revenues, and expanding and upgrading its fleet.

We see enormous upside in the next year with even more looking out over the next five.

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