United Airlines recently confirmed their strong guidance for the second quarter of the year, but despite this positive news, the stock price has dropped significantly. The company had predicted an EPS of $10 for the year, similar to Royal Caribbean Cruises Ltd., but their stocks have been moving in opposite directions. However, I believe that the market is underestimating the true value of United Airlines due to its low valuation and the current market conditions.
Even though the airline had a successful year in 2023, the stock prices have been affected by negative news surrounding the industry in 2024. United Airlines has reiterated their goal for Q2 ’24 EPS to be in the $4 range, which is lower than last year’s $5+ EPS. Despite this, the focus should be on the company’s strong profit and cash flow potential in the upcoming years. The airline’s guidance indicates an EPS of $10 per share in 2024, with significant capex investments planned for the next few years.
United Airlines has a healthy financial position with a cash balance of $14 billion and total assets of over $40 billion. Although the debt level may seem high at nearly $27 billion, the net debt position is only $13 billion. In comparison, Royal Caribbean, with an EPS target of $11 for 2024, has a higher debt level. United Airlines also has a substantial PP&E balance and could consider returning capital to shareholders, possibly through a share buyback.
The stock market may not be prepared for United Airlines to announce a share buyback or other capital return plans. While Delta Air Lines has recently increased its dividend, the cruise lines are not in a position to do so due to their higher debt levels. However, United Airlines’ strong financial position and potential for capital returns make it an undervalued stock in the market.
In conclusion, United Airlines Holdings, Inc. stock is currently trading at a low price despite its strong earnings potential. The company’s solid financial position and potential for capital returns could surprise the market and lead to a significant increase in stock value. Investors should consider the long-term value of United Airlines and the possibility of a capital return plan in the near future.