By Teresa Rivas
The Transportation Safety Administration still won't let passengers carry more than three ounces of liquid when they fly, but airline stocks might be turning on the money spigot.
United Airlines Holdings shares jumped on Tuesday after TD Cowen analyst Tom Fitzgerald reiterated a Buy rating on the shares and raised his target for the price to $125 from $100. Near midday, the stock was up about 3.3% at $93.40, while the S&P 500 was 0.2% higher
Fitzgerald named United his best idea for 2025, saying it is in the most favorable position to take advantage of company-specific positive factors and more welcoming conditions in the industry.
"United is set to continue its post-COVID leadership due to investments in the network, fleet, and customer experience," he wrote. "Upside exists from domestic share gains, increasing corporate traffic and maturing international routes."
Although airlines have been a money-loser for long-term investors, there have been times when the stocks have outperformed. Many analysts believe we are now entering just such a period.
Melius Research analyst Conor Cunningham made that argument at the end of October, writing that "every few years the stars align and the stock s significantly outperform -- that time may be now." While he too likes United, Alaska Air Group is his favorite stock in the group.
Investors certainly seem to agree that conditions are favorable, as United shares have soared more than 130% this year. The stock has outperformed every company included in the S&P 500 Information Technology sector save Palantir Technologies and Nvidia. That puts it ahead of highfliers like Dell Technologies, Oracle, and Broadcom.
Nvidia is also the only Magnificent Seven stock that is ahead of United year to date.
Fitzgerald argues that United stands out from the pack because it has spent years reshaping and investing in its business. All airlines will likely benefit from lower domestic capacity and fuel prices, along with ongoing demand and the problems of ultralow cost operator Spirit Airlines, he says. Yet United's industry-leading international franchise puts it ahead of its peers, poised to "remain a leader in these markets as it maintains a large advantage in widebody aircraft and widebody orders," he wrote.
United's domestic position looks strong as well because it has a newer fleet of planes that will lower its costs and increase its potential revenue by making more seats available overall. Rivals' problems in places such as Chicago, Denver, and California mean it is also likely to keep snapping up U.S. market share.
"United is poised to grow above the peer group while still generating enough cash flow to fund its ongoing fleet overhaul, debt pay down, and steady shareholder returns," Fitzgerald concluded. "The shares should continue their re-rating journey and merit a double-digit multiple, in our view."
Nor do the shares, for all their 2024 gains, look very pricey. At 7.5 times forward earnings, United trades in the middle of its legacy airline peers, with Delta at 8.8 times and American Airlines at 7.2. United's five-year average is 33 times.
For decades, United Airlines flew under the slogan 'fly the friendly skies.' Today, the shares may be more shareholder friendly than they have been in years.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 19, 2024 14:15 ET (19:15 GMT)
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