Why United Airlines Stock Was Soaring So High This Week

Times are frothy for the travel industry these days, so it wasn't exactly surprising to hear good news coming from top American carrier United Airlines (NASDAQ: UAL) several days ago.

On the back of a strong quarterly earnings report and a subsequent clutch of analyst price target raises, the company's shares experienced quite a lift. According to data compiled by S&P Global Market Intelligence, they were up by almost 19% in value week to date as of Friday prior to market open.

Third-quarter triumph

On the face of it, United didn't have a spectacular third quarter, as its revenue increased by less than 3% year over year and non-GAAP (adjusted) profitability fell at a steeper rate. But stocks trade on expectations and since those headline numbers topped the consensus analyst estimates, investors eagerly snapped up the stock. What also helped was a new stock buyback program that could grow as large as $1.5 billion.

Many pundits tracking the stock didn't seem all that bothered by the bottom-line slide or the modest revenue growth. In fact, a host of them quickly raised their price targets for the carrier in the wake of those results.

One assertive raiser was TD Cowen's Helane Becker, who upped her fair value assessment on United stock by a robust 25%. She now feels it's worth $100 per share, quite some distance above her previous $80. She maintained her buy recommendation, citing positive factors such as "the corporate recovery, maturing international franchise, [and] domestic market share gains."

The return of irrational exuberance?

It's easy to get swept up in the excitement swirling around a popular stock. I don't feel either United's trailing performance or the guidance it proffered is overly impressive, however. I'd also emphasize that the company operates in a high-cost, competitive industry that's challenging even at the best of times. Considering that, I would be cautious with United and its peer airline stocks these days.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.