United Airlines Holdings, Inc. (UAL - Get Rating) is a global air transportation services provider transporting people and cargo through its mainline and regional fleets. Additionally, the company sells fuel and provides catering services and ground handling for third parties.

The stock has declined 21.4% over the past year and 13.6% year-to-date to close its last trading session at $37.85. However, it has gained 7.6% over the last five trading sessions versus the SPDR S&P 500 Trust ETF’s (SPY) marginal gains.

Flight cancellations and delays troubled air travelers during the July 4th weekend, with more than 2,000 domestic flight cancellations. Also, on July 5, nearly 600 more were canceled, and about 5,500 were delayed. Also, the global pandemic has reduced the industry’s workforce, and the industry is struggling to stay afloat because of inflated fuel costs.

Furthermore, the increasing odds of a recession are expected to offset travel demand, affecting the airline industry. So, can UAL maintain its momentum?

Here are the factors that could affect UAL’s performance in the near term:

Unimpressive Financials

For the fiscal first quarter that ended March 31, UAL’s total operating revenue increased 134.9% year-over-year to $7.57 billion. However, its total operating expenses rose 94.3% from the prior-year quarter to $8.94 billion.

The company’s adjusted net loss and adjusted loss per share declined 42% and 43.5% from the same period the prior year to $1.38 billion and $4.24.

Mixed Valuation

In terms of its forward non-GAAP P/E, UAL is trading at 108.23x, 643.9% higher than the industry average of 14.55x. However, its forward EV/Sales multiple of 0.78 is 49.3% lower than the industry average of 1.54. In terms of its forward EV/EBIT, it is trading at 19.93x, 46.5% higher than the industry average of 13.60x. However, its forward Price/Sales multiple of 0.28 is 75.3% lower than the industry average of 1.15.

Uneven Growth Story

UAL’s revenue has declined at an 11.5% CAGR over the past three years and a 4.7% CAGR over the past five years. However, its total assets and levered FCF have grown at CAGRs of 10.9% and 44.3%, respectively, over the past three years.

POWR Ratings

UAL has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

UAL has a Growth and Value grade of C in sync with its mixed financial growth over the past few years and mixed valuations.

In the 31-stock Airlines industry, it is ranked #21. The industry is rated F.

Click here to see the additional POWR Ratings for UAL (Momentum, Stability, Sentiment, and Quality).

View all the top stocks in the Airlines industry here.

Bottom Line

UAL has achieved stellar growth in its top line and recovered some losses in the last reported quarter. However, the operational disruptions in the airline industry are expected to weigh down on the stock.

Moreover, investment analysts at Jefferies Financial Group dropped the company’s third-quarter EPS estimate from $1.03 to $0.36. Hence, it might be wise to wait for a better entry point in the stock.

How Does United Airlines Holdings, Inc. (UAL) Stack Up Against its Peers?

While UAL has an overall POWR Rating of C, one might consider looking at its industry peers, Air France-KLM SA (AFLYY - Get Rating) and Deutsche Lufthansa AG (DLAKY - Get Rating), which have an overall B (Buy) rating.

UAL shares were unchanged in after-hours trading Friday. Year-to-date, UAL has declined -11.42%, versus a -18.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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