What To Expect From United Airlines’ Q2?

United Airlines (NASDAQ: UAL) will report its Q2 2024 results on Wednesday, July 17. We expect the company’s revenues to come in at $15.2 billion and earnings to be $3.99 per share, aligning with the consensus estimates. The company should benefit from a buoyant travel demand. Not only do we expect United Airlines to post in-line results in Q2, we believe there is ample room for its stock to grow from its current levels of under $45.  See our interactive dashboard analysis on United Airlines Earnings Preview for more details on United Airlines’ revenues and earnings for the quarter. So, what are some of the trends that are likely to drive United Airlines’ results?

Firstly, let us look at UAL stock performance in recent years. UAL stock has seen little change, moving slightly from levels of $43 in early January 2021 to around $45 now, vs. an increase of about 50% for the S&P 500 over this roughly three-year period. Overall, the performance of UAL stock with respect to the index has been lackluster. Returns for the stock were 1% in 2021, -14% in 2022, and 9% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UAL underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector, including CAT and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UAL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think UAL stock is attractive. We estimate United Airlines’ Valuation to be $60 per share, reflecting a nearly 35% upside from its current levels of $45. Our forecast is based on a 6x P/E multiple for UAL and expected earnings of $9.75 on a per-share and adjusted basis for the full year 2024. The company has guided its adjusted earnings per share to be in the range of $9.00 and $11.00.

Looking at the previous quarter, United Airlines’ revenue of $12.5 billion in Q1 was up 9.7% y-o-y. The company reported a 9% rise in available seat miles, while the passenger revenue per available seat mile was up 1%. The company saw its adjusted pre-tax margin improve to -0.6% in Q1 from -2.3% in the prior-year quarter. The company’s bottom line stood at $(0.15) on an adjusted basis, versus $(0.63) in Q1’23. United Airlines reported a 13.5% y-o-y decline in average fuel cost per gallon, bolstering its bottom line. The average fuel costs came in lower sequentially as well. The company’s results include a $200 million impact from the grounding of Boeing 737 MAX aircraft in January this year.

Coming to the latest quarter, the company will likely continue to benefit from increased capacity, while the occupancy and yields may be slightly lower than the levels seen in the prior-year quarter. Also, the company should continue to see higher non-fuel costs, primarily due to increased wages. Overall, United Airlines will likely post an in-line Q2 while it stock remains attractive, in our view.

While United Airlines stock looks like it can see higher levels, check out how other United Airlines Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/14/2024
[2] Cumulative total returns since the end of 2016

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