On Thursday, Susquehanna adjusted its outlook for United Continental (NASDAQ:UAL), increasing the stock's price target from $55.00 to $60.00 while maintaining a Positive rating. The move comes as United Continental demonstrates progress through its United Next initiative, which aims to rebuild the airline's core strengths that once drew deep-value investors before the pandemic.
United Continental recently disclosed its first-quarter adjusted earnings per share (EPS) of -$0.15, surpassing both the high end of its January guidance, which ranged from -$0.35 to -$0.85, and the consensus estimate of -$0.58.
The results notably included over $200 million in costs related to the grounding of the B737 MAX 9 in January. Without this incident, the company believes it would have posted a profit for the quarter.
The airline's performance has been bolstered by various factors, including resilient yields in its core hubs, which have benefited from increased frequencies and connectivity, thanks to the use of larger aircraft. Moreover, United Continental's loyalty program continues to contribute to its strength, and the company is on a path to achieving an attractive free cash flow profile.
According to Susquehanna's analysis, the better-than-expected operating performance, characterized by lower fuel costs and cost per available seat mile excluding fuel (CASM-ex), was primarily responsible for the earnings beat. This positive outcome was despite the challenges faced during the quarter, including the financial impact from the B737 MAX 9 grounding.
The airline's strategic efforts and financial results indicate a recovery trajectory and a growing competitive advantage, or "moat," in the industry. United Continental's focus on core profitability and long-haul international routes appears to be paying off as it works to re-establish its pre-pandemic appeal to investors.
InvestingPro Insights
United Continental's recent performance has caught the attention of analysts and investors alike. With a robust recovery in progress, the company's financial metrics provide valuable insights. An InvestingPro analysis reveals a compelling P/E Ratio of 5.13, reflecting a company trading at a low earnings multiple relative to near-term earnings growth.
This is further substantiated by an adjusted P/E ratio for the last twelve months as of Q1 2024, which stands at an even more attractive 4.61.
From an operational standpoint, United Continental has demonstrated significant efficiency with a Gross Profit Margin of 33.94% over the last twelve months as of Q1 2024, indicating that the company is effectively managing its cost of goods sold. Moreover, the airline has exhibited a strong return over the last three months, with a price total return of 22.55%, highlighting investor confidence in its growth trajectory.
InvestingPro Tips highlight United Continental's status as a prominent player in the Passenger Airlines industry and its high shareholder yield. These factors, combined with the company's profitability over the last twelve months and analysts' predictions of continued profitability this year, paint a positive picture for potential investors.
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