United Airlines (UAL)

Airline company United Airlines Holdings (NASDAQ:UAL) announced better-than-expected revenue in Q1 CY2025, with sales up 5.4% year on year to $13.21 billion. Its non-GAAP profit of $0.91 per share was 23.8% above analysts’ consensus estimates.

Company Overview

Founded in 1926, United Airlines Holdings (NASDAQ:UAL) operates a global airline network, providing passenger and cargo air transportation services across domestic and international routes.

The company offers premium cabin services, frequent flyer programs through MileagePlus, and ancillary services such as baggage handling and in-flight entertainment.

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Competitors in the airline industry include Delta Air Lines (NYSE:DAL), American Airlines Group (NASDAQ:AAL), and Southwest Airlines (NYSE:LUV).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, United Airlines’s 6.8% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. United Airlines’s annualized revenue growth of 8.8% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its number of revenue passenger miles, which reached 59.52 billion in the latest quarter. Over the last two years, United Airlines’s revenue passenger miles averaged 8.7% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see the company’s monetization was fairly consistent.

This quarter, United Airlines reported year-on-year revenue growth of 5.4%, and its $13.21 billion of revenue exceeded Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

United Airlines’s operating margin has been trending up over the last 12 months and averaged 8.8% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports mediocre profitability for a consumer discretionary business.

In Q1, United Airlines generated an operating profit margin of 4.6%, up 3.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Looking ahead, Wall Street expects United Airlines to become less profitable. Analysts are expecting the company’s trailing 12-month operating margin of 9.7% to decline to 8.2% in the coming year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

United Airlines’s unimpressive 6.8% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

In Q1, United Airlines reported EPS at $0.91, up from negative $0.15 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects United Airlines’s full-year EPS of $11.64 to shrink by 9.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

United Airlines has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.2%, lousy for a consumer discretionary business.

United Airlines’s free cash flow clocked in at $2.48 billion in Q1, equivalent to a 18.7% margin. This result was good as its margin was 6.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict United Airlines’s cash conversion will fall to break even. Their consensus estimates imply its free cash flow margin of 8.4% for the last 12 months will decrease by 6.8 percentage points.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

United Airlines historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.7%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, United Airlines’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

United Airlines reported $15.33 billion of cash and $27.66 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $8.58 billion of EBITDA over the last 12 months, we view United Airlines’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $268 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing United Airlines beat analysts’ revenue and EPS expectations this quarter. Overall, this quarter had some key positives. The stock traded up 6.8% to $71.61 immediately following the results.

Updated: May 16, 2025 at 11:20 PM EDT

When considering an investment in United Airlines, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of United Airlines, we’ll be cheering from the sidelines. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, United Airlines’s Forecasted free cash flow margin suggests the company will ramp up its investments next year, and its projected EPS for the next year is lacking.

United Airlines’s P/E ratio based on the next 12 months is 7.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $91.15 on the company (compared to the current share price of $76.61).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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