One of Wall Street's biggest winners of the day is United Airlines, a airlines company whose shares have climbed 4.3% to a price of $95.38 -- 13.02% below its average analyst target price of $109.66.
The average analyst rating for the stock is buy. UAL outperformed the S&P 500 index by 4.0% during today's afternoon session, and by 91.1% over the last year with a return of 114.8%.
United Airlines Holdings, Inc., through its subsidiaries, provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company is a consumer cyclical company, whose sales figures depend on discretionary income levels in its consumer base. For this reason, consumer cyclical companies have better sales and stock performance during periods of economic growth, when consumers have more of an incentive to spend their money on non-essential items.
United Airlines's trailing 12 month P/E ratio is 11.4, based on its trailing EPS of $8.39. The company has a forward P/E ratio of 7.7 according to its forward EPS of $12.09 -- which is an estimate of what its earnings will look like in the next quarter.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US consumer discretionary companies is 22.6, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
United Airlines's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 6,911,000 | 7,171,000 | -260,000 | -120.85 |
| 2022 | 6,066,000 | 4,819,000 | 1,247,000 | 3217.5 |
| 2021 | 2,067,000 | 2,107,000 | -40,000 | 99.32 |
| 2020 | -4,133,000 | 1,727,000 | -5,860,000 | -346.12 |
| 2019 | 6,909,000 | 4,528,000 | 2,381,000 | 529.89 |
| 2018 | 4,448,000 | 4,070,000 | 378,000 |
- Average free cash flow: $-359000000.0
- Average free cash flown growth rate: -32.8 %
- Coefficient of variability (lower numbers indicating more stability): 0.0 %
If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for UAL, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
United Airlines has a P/B ratio of 2.74. 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 3.19 as of the third quarter of 2024.
With a Very low P/E ratio, an average P/B ratio, and negative cash flows with a downwards trend, we can conclude that United Airlines is probably overvalued at current prices. The stock presents mixed growth prospects because of its decent operating margins with a stable trend, and an above average PEG ratio.
