Key points
- Stocks have been quiet so far this year, but that’s about to change.
- After a strong earnings report, several analysts expect a 50% upside.
- There is also the potential to catch up, as United has fallen behind the wider airline industry.
- 5 stocks we prefer to United Airlines
Having had a rather sideways trend in the last three months, the shares of United Airlines Holdings, Inc. NASDAQ: UAL they’re finally starting to look ready to take off again. While stocks overall have posted some of their best gains in years, airline stocks have seen a notable slowdown. This is an interesting divergence, especially when you consider how closely the likes of United have followed the performance of the wider market throughout the past year.
But by simply struggling to match the performance of the benchmark index, the S&P 500 has opened up an interesting entry opportunity so far this year. United shares have been making higher lows since mid-January and are on the verge of a higher high. These are the key patterns investors want to see in any uptrend, and if United can confirm the setup in the next couple of sessions, look out for the above.
The current move began with the company beating analysts’ expectations for fourth-quarter earnings last month. Their forward guidance also turned out to be positive, with management now expecting full-year adjusted EPS to be between $9 and $11 versus the previous consensus of $9.48. Perhaps even more than the previous quarter’s numbers, Wall Street loves to see a company’s guidance exceed analysts’ expectations, as it always tends to result in a stock rerating higher.
Bullish updates
It also forces analysts to revise their estimates and forecasts for the stock and often means new upgrades. This was the case for United, as the Evercore ISI team increased its stock rating last week. Having previously earned a Neutral In-Line rating, they upgraded it to a full Outperform rating based on a brighter-than-expected outlook for the year ahead.
Analyst Duane Pfennigwerth and his team highlighted what they called “investor-friendly moves,” such as a likely change in capital allocation, which they see as one of the most bullish tailwinds a stock like United can have. They are also impressed by the high level of management execution and comparative ratings compared to their competitors.
Their new price target of $65 indicates further upside of at least 50% from current levels, which is far from the only bullish signal out there. The TD Cowen team reiterated a buy rating on United shares last month and also gave them a $65 price target, which the Raymond James team also did in late December.
So, with the company performing better than expected last quarter and now expecting to do even better this quarter, there’s a lot to like about United. Add the fact that several weight analysts are targeting the region by at least 50%, and you can be sure that we have found a winner here.
Getting involved
Technically, the stock needs to close above last month’s high of $45 to set a higher high, which would confirm that a new uptrend is emerging and put a path to $65 in play. If United stock manages to make it through the coming weeks and months, they would trade at post-pandemic highs and with good value to continue trending towards their all-time high of around $100.
As with all airlines, there are serious risks beyond their control, such as those related to structural problems in aircraft, as we saw last month. There is also the fact that United has fallen behind its competing airlines, which, on the one hand, is not good luck but, on the other, gives the feeling that a rare pre-entry opportunity is opening up here. rally.
Because, overall, United has enough tailwind right now to take the stock back higher, and barring any sector-wide pullback, the upside potential here makes this one of the airline stocks to own for the year to come.
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