What You Need to Know About UAL

Airlines company United Airlines is standing out today, surging to $54.14 and marking a 3.24% change. In comparison the S&P 500 moved only -0.97%. UAL is -6.06% below its average analyst target price of $57.63, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, United Airlines shares have outperformed the S&P 500 by 71.01%, with a price change of 68.08%.

United Airlines's trailing 12 month P/E ratio is 23.7 based on its trailing EPS of $2.28. The company has a forward P/E ratio of according to its forward EPS of $10.07 -- which is an estimate of what its earnings will look like in the next quarter.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the consumer discretionary sector has an average P/E ratio of 22.33, and the average for the S&P 500 is 15.97.

We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.

United Airlines's PEG ratio of 1.058 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.

To better understand the strength of United Airlines's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:

Date Reported Revenue (k) Operating Expenses (k) Operating Margin YoY Growth
2022-12-31 $43,302,000 $8,764,000 5.4% 221.9%
2021-12-31 $23,067,000 $2,218,000 -4.43% 90.48%
2020-12-31 $13,673,000 $1,667,000 -46.51% -560.04%
2019-12-31 $42,560,000 $10,804,000 10.11% 27.01%
2018-12-31 $40,574,000 $21,755,000 7.96% n/a
  • Average operating margins: -5.49 %
  • Average operating margins growth rate: -44.13 %
  • Coefficient of variability (lower numbers indicate less volatility): 430 %

Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From United Airlines's last four annual reports, we are able to obtain the following rundown of its free cash flow:

Date Reported Cash Flow from Operations (k) Capital Expenditures (k) Free Cash Flow (k) YoY Growth
2022-12-31 $6,066,000 $4,819,000 $1,247,000 3217.5%
2021-12-31 $2,067,000 $2,107,000 -$40,000 99.32%
2020-12-31 -$4,133,000 $1,727,000 -$5,860,000 -346.12%
2019-12-31 $6,909,000 $4,528,000 $2,381,000 13.71%
2018-12-31 $6,164,000 $4,070,000 $2,094,000 n/a
  • Average free cash flow: $-35,600,000.00
  • Average free cash flown growth rate: 596.88 %
  • Coefficient of variability (the lower the better): 9520 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in UAL have received an annualized dividend yield of 0.0% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.

United Airlines has a P/B ratio of 2.677. This indicates that the market value of the company exceeds its book value by a factor of more than 2, but is still below the average P/B ratio of the Consumer Discretionary sector, which stood at 3.12 as of the first quarter of 2023.

With an average P/E ratio, an average P/B ratio, and an unconvincing cash flow history with an upwards trend, we can conclude that United Airlines is probably overvalued at current prices. The stock presents poor growth indicators because of its consistently negative margins with a negative growth trend, and no PEG ratio.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.