Is United Airlines Stock a Buy?

Shares of United Airlines (NASDAQ: UAL) surged to their highest level since early 2020 following the company's latest quarterly update in mid-October. The global carrier beat its own bottom-line expectations, with management citing strong demand during a "prosperous" summer flying season.

Shareholders have a lot to be cheering about, with the stock up 110% over the past year. On the other hand, investors sitting at the gate may be wondering if it's too late to board this jumbo jet.

Can the rally in United Airlines stock can keep going?

Flying high into 2025

The historic pandemic-era disruptions that brought the airline industry to a standstill are now a distant memory. That was the message from United Airlines in its third-quarter earnings report, projecting confidence that the company has reached an inflection point into a more sustainably profitable environment.

This was the busiest third quarter in the company's history, as measured by revenue passenger volumes, setting an all-time daily record of passengers carried at 552,000 in July.

Total revenue increased by 2.5% year over year, leading to adjusted diluted earnings per share (EPS) of $3.33, coming in well ahead of the prior guidance range between $2.75 and $3.25.

Despite some volatility in performance metrics, including a 1.1% year-over-year decline in yield -- which measures revenue per passenger -- as new capacity was added, the strong point for United has been its domestic operation. The "premium" cabin offering posted a 2% higher revenue per available seat mile (RASM). Basic economy volumes were also up sharply, with overall RASM ramping up in recent months. Internationally, there is an expectation of improving yields in Asia-Pacific and Latin America as the region's industry capacity normalizes.

For the current quarter, United is targeting EPS between $2.50 and $3.00, around 38% higher at the midpoint compared to the $2.00 result in the year-ago fourth quarter..

United also announced a new $1.5 billion share repurchasing program, representing around 6% of the company's current market capitalization. Notably, this is the first buyback program since 2020, when it was suspended during the early days of the pandemic. This signals optimism from management that the recent earnings trend will continue.

Image source: Getty Images.

A boom in business travel

The attraction of United Airlines as an investment is the sense that the company continues to consolidate its industry leadership through its "no excuses" corporate philosophy, with a focus on excellence in customer service.

Maybe the biggest development this year sending optimism up is signs that business air travel is rebounding, which has traditionally been United's bread and butter as it leverages its premium product, loyalty benefits, and extensive global network. High-profile companies across multiple sectors have made headlines by mandating employees keep a physical office presence, creating more opportunities for face-to-face meetings and conference events as drivers of air travel.

United Airlines CEO Scott Kirby highlighted these dynamics during the Q3 conference call, saying "We're clearly seeing an acceleration of return-to-office policies, which are driving corporate traffic revenue growth at an accelerated level and creating a great setup for 2025."

A resilient macroeconomic backdrop should support steady demand growth, including on the leisure travel side. According to an average of Wall Street estimates, United is forecast to reach $10.27 in EPS this year, before climbing by 18% to $12.10 in 2025.

Shares of United Airlines are trading at just 6.2 times that 2025 EPS estimate. This represents a discount to peers like Delta Air Lines at 7.5, or American Airlines at 6.8. My interpretation is that United is still undervalued, even following the stock price rally this year, with the current financial momentum justifying a higher earnings premium.

UAL PE Ratio (Forward 1y) data by YCharts

Stay bullish on United Airlines

I believe United Airlines stock is a buy, with plenty of room to gain altitude. Recognizing that the market also carries a layer of uncertainty with the potential for near-term turbulence, United remains an excellent stock for long-term investors in a diversified portfolio.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.