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Can United Airlines Stock Fly Higher? Analyst Weighs In
Stock Analysis & Ideas

Can United Airlines Stock Fly Higher? Analyst Weighs In

United Airlines Holdings (UAL) stock has been a strong performer in 2021. With the coronavirus on the backfoot and the airline considered a recovery play, investors have taken the macro developments as a buy sign; shares are up 30% year-to-date, far better than the S&P 500’s 12% uptick.

Raymond James’ Savanthi Syth believes the outperformance is set to continue and thinks investors should take note of an ignored element which will help to drive shares forward.

Although it accounts for 55-60% of United’s daily departures and served ~40% of overall routes in 2019, United’s regional partners, collectively known as United Express (“UAX”), are often “overlooked and underestimated.”

“Regional airline feed is an important cornerstone of United’s strategy to improve domestic hub profitability by building scale and relevance, improving revenue quality and connectivity, and driving increased asset efficiency,” the 5-star analyst said. “There has been a clear shift in United’s (and its peers’) approach to the segment, which along with innovative developments at UAX should lead to a profitability tailwind in the eventual business demand recovery (driven by improved revenue and cost efficiency).”

UAX forms a vital part of United’s mid-continent hub strategy which the company initiated prior to the pandemic to improve hub profitability – its RJs (regional jets) allow for a much greater number of connecting itineraries. What’s more, UAX costs benefit due to lower labor rates with a relatively junior workforce, compared to its mainline operations.

The company’s innovative approach appears to be working, too. Due to a lower number of multi-class large RJs allowed by its mainline pilot scope contract, compared to peers, UAX is disadvantaged. But the company has countered this issue with the introduction of the CRJ-550, a multi-class small (50-seat) RJ, modified from 70-seat CRJ-700s. This lets United offer a dependable premium product (business, premium plus) experience no matter the market size.

“Not only has the CRJ-550 met anticipated operating economics,” Syth said, “It has also garnered the highest NPS (Net Promoter Score) of any United domestic aircraft.”

So, what does this all mean for investors? All in all, Syth sticks to an Outperform (i.e., Buy) rating and has a $78 price target for the shares. Upside from current levels is 39%. (To watch Syth’s track record, click here)

Not all on the Street are as enthusiastic, but the bulls just edge out the skeptics; with 7 Buys vs. 7 Holds and 1 Sell, the stock qualifies with a Moderate Buy consensus rating. The forecast is for 12-month gains of ~11%, given the average price target clocks in at $62.15. (See UAL stock analysis on TipRanks)

To find good ideas for airline stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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