United Airlines (UAL, Financial) stock surged by 13.81% after the company released its third-quarter earnings report. The stock is currently priced at $72.90. The positive movement was driven by the company exceeding analysts' expectations and announcing its first stock buyback plan since the pandemic.
United Airlines reported third-quarter revenue of $14.8 billion, a 2.5% increase from the previous year. The non-GAAP EPS was $3.33, which, despite being an 8.8% decrease year-over-year, surpassed analyst forecasts. The company projected a fourth-quarter adjusted EPS between $2.50 and $3.00, which exceeds the consensus estimate of $2.68. These results reflect an improvement in revenue trends as the airline industry reaches a significant turning point, leading to a rationalization of capacity that benefits profitability in the fixed-cost airline industry.
United Airlines also announced a $1.5 billion share repurchase program, its first since the onset of COVID-19. This program accounts for approximately 7% of shares outstanding prior to the stock's price increase. Moreover, United has retired 2 million shares by settling warrants issued to the U.S. government under the CARES Act during the pandemic.
In terms of valuation, United Airlines (UAL, Financial) has a price-to-earnings (P/E) ratio of 8.79, which is relatively low compared to the industry median. The company's price-to-book (P/B) ratio stands at 2.28. Despite the positive earnings report, United Airlines' Altman Z-Score indicates a distress level, suggesting possible financial risks. However, the Beneish M-Score implies that the company is unlikely to have manipulated its earnings.
According to GuruFocus, United Airlines is considered "Modestly Overvalued" with a GF Value of $58.96. Investors may find it useful to check the GF Value for further insight into its valuation. The stock is approaching its 52-week high, signifying strong momentum. However, potential investors should be mindful of the company's financial strength warning signs, including its return on invested capital being less than the weighted average cost of capital.
