Skip to main content

Here's Why United Airlines Stock Soared This Week

Motley Fool - Fri Sep 27, 6:19AM CDT

It's been a good week for airline stocks, with United Airlines(NASDAQ: UAL) and others enjoying double-digit returns over the last week. For example, United stock is up 12.8% in the week to Friday morning.

Airline stocks are flying

There have been many positive trading updates and third-quarter guidance upgrades in the sector recently, and this week's move builds on it. Investors were concerned about relatively high interest rates putting pressure on consumer spending, and widely reported issues with overcapacity.

A combination of the two usually leads to collapsing ticket prices and airlines stuck running less profitable routes. However, in mid-September, Alaska Air upgraded third-quarter guidance, discussed more robust demand than expected, and said its revenue per available seat mile (RASM) was improving again. Similarly, Allegiant Travel raised its third-quarter earnings guidance recently.

United Airlines and Delta Air Lines update

Delta Air Lines and United Airlines recently gave presentations at the Morgan Stanley Laguna Conference. Both described an industry that was rationally reducing capacity on less profitable routes. Moreover, both said they had passed a point of inflection in RASM on the back of good traffic in August and September.

RASM is a key industry metric to follow because when airlines increase revenue from miles flown, it implies that the demand/supply environment is favorable and that the industry isn't suffering from overcapacity.

As such, the scene is set for United Airlines to report an excellent third quarter. Delta should do the same, and that's why it's one of three great industrial stocks to buy right now.

An air passenger arriving an airport lounge.

Image source: Getty Images.

Is United Airlines a stock to buy?

Trading at less than 6 times its estimated earnings in 2024, United Airlines also looks like an excellent value. Moreover, the evidence that airlines are being more disciplined in reducing capacity where and when necessary is a long-term positive, as is the growing loyalty-card-related revenue generated by Delta and United Airlines. All told, the stock looks very attractive.

Should you invest $1,000 in United Airlines right now?

Before you buy stock in United Airlines, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and United Airlines wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $756,882!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group, Allegiant Travel, and Delta Air Lines. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.