IBD 50 growth stock United Airlines is forming a cup with handle with a buy point of 54.05, according to IBD MarketSmith.
UAL has a perfect Composite Rating of 99 and an RS Rating of 93. Its EPS Rating of 73 trails because of losses the company had in 2020 and 2021.
Sales have grown over the past seven quarters, though earnings have been mixed. First-quarter sales of $11.4 billion rose 51%. A loss of 63 cents per share improved from a per-share loss of $4.24 a year ago.
The company generated a record $3 billion in operating cash flow during the quarter. The airline also saw the lowest seat cancellation rate for the first quarter since 2012.
United, like many other carriers, is benefiting from a big rebound in travel with the end or curtailing of Covid restrictions.
Despite macroeconomic risks, "demand remains strong, especially internationally," said CEO Scott Kirby. United has been adding international routes to capture that demand. During the quarter, it launched four new routes between the Middle and Far East and the U.S., and reintroduced four international routes that had been suspended during the pandemic.
The stock may face some near-term headwinds as the company tries to match the pilot contract by rival Delta Air Lines. Delta's new $7.2 billion pilot contract will unfold over four years with higher pilot pay and benefits.
The contract, which took effect in March, is putting pressure on competitors like UAL. A spike in operating costs from a new and expensive contract will exacerbate the three-year negative free cash flow UAL has seen.
For the June quarter, the Chicago-based company expects earnings per share of $3.50-$4. The analyst consensus in FactSet is at the higher end of the company's outlook, with earnings per share of $4.01 on sales of $13.9 billion. That would be an increase of 14.8% year over year.
Growth Stock Maintains Outlook
The airline maintained its full-year EPS outlook of $10-$12. If the company meets the lower end of the target range, it would achieve a 281% increase.
At the current price, the stock trades at a low price-earnings multiple of 5.2, with several competitors trading at higher multiples despite lower earnings estimates.
United ranks fourth in the airlines industry group which holds a lofty 11th place among IBD's 197 groups. It is also on the IBD Leaderboard Watchlist.
Fund ownership has been growing over the past seven quarters with funds owning 50% of shares outstanding shares now. Mutual funds holding UAL include the Vanguard Mid Cap Index Fund and American Funds Growth Fund Of America.
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