United Airlines Is Rebounding And UAL Stock Is Cheap

  • Travel trends and flying trends are improving
  • United Airlines UAL) has benefited from these trends and is aimed to continue doing so
  • Investors looking to benefit from the rebounding travel sector should buy UAL stock

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With fears about the coronavirus greatly receding, many consumers have resumed traveling and flying. United Airlines (NASDAQ:UAL) has already significantly benefited from this trend, as its first-quarter revenue guidance was quite impressive. As a result, UAL stock is likely to climb as travel continues to become more popular.

Investors’ worries about the war in Ukraine greatly derailing the travel rebound appear to have greatly eased and oil prices seem to be under control.

Also noteworthy is the valuation of United Airlines’ stock is very attractive.

As a result of all these points, I recommend that investors looking to benefit from the rebounding travel sector buy UAL stock.

UAL United Airlines Holdings, Inc. $45.51

Travel Trends Are Rebounding Tremendously

In a recent article, Seeking Alpha reported, “Recent airline booking data suggest that the industry is getting closer to its pre-pandemic levels, with domestic leisure travel actually surpassing the 2019 benchmark. (Lagging business demand continues to weigh on the sector.)”

At a March 15 conference, Executive Vice President and Chief Commercial Officer Andrew Nocella said the company was seeing “very strong leisure demand.” And Nocella went further, saying that United was benefiting from “really unprecedented demand,” as “people want to get back out, they want to connect, they want to see their friends, family.”

Remarkably, even business travel is quickly recovering, Nocella noted, explaining that, “Business traffic is booming, we still have a long way to go. But we’ve made so much more progress than we thought earlier in Q1.” He added that the company’s cargo business is also doing very well. Finally, the executive pointed out “most importantly border restrictions are finally starting to fall and allowing for more travel to happen easier and more conveniently.”

UAL Stock Financial Outlook, Passenger Data Is Improving

On March 16, United provided guidance that backs up Nocella’s upbeat assertions. United expects its Q1 revenue to be 20%-25% less than during the same quarter in 2019, with its sales likely coming in at the higher end of that range. While that number is less than its 2019 levels, it actually shows a massive improvement compared to its pandemic levels. That translates to Q1 sales at the higher end of a $7.67 billion-$7.91 billion range, versus analysts’ average estimate before the announcement of $7.52 billion.

“System bookings for future travel have improved close to 40 points since the first week of 2022 and business traffic has increased more than 30 points since the peak of the Omicron impact in January 2022,” United reported.

War Fears, Oil Prices Seem to Be Under Control

With the initial shock and concern over war spilling across Europe abating, worries about it derailing international travel seem to have receded.

Providing evidence for that assertion, UAL stock has jumped nearly 38% since March 8. Other travel stocks have also advanced meaningfully in recent weeks, with both Expedia (NASDAQ:EXPE) rising 21% and Marriott (NASDAQ:MAR) climbing 15% since March 8.

Meanwhile, oil prices have also dropped significantly since the beginning of March. WTI crude prices, for example, fell from $124 on March 8 to $103 on March 31. It appears likely that fears of huge disruptions in oil prices have faded significantly. Additionally, America’s recent decision to sell a large amount of oil from its Strategic Petroleum Reserve should keep a lid on oil prices for some time.

As a result, a scenario where United would either have to raise prices dramatically or accept a big reduction in its margins due to fuel prices seems unlikely to happen.

Bottom Line on UAL Stock

United is currently changing hands around 9.5x its trailing price-to-earnings ratio. That’s a very attractive valuation for a company whose business is rapidly improving.

So, United is quickly recovering and UAL stock is cheap, making the shares very attractive for those looking for a good play on the travel rebound.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on US stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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