As American Airlines cuts guidance, United Airlines stock is a buy

By:
on May 29, 2024
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  • Jefferies analyst favours United Airlines stock over $AAL.
  • Sheila Kahyaoglu explained why in a research note today.
  • $UAL is already up about 40% versus its year-to-date low.

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United Airlines Holdings Inc (NASDAQ: UAL) is a much better pick than peer American Airlines Group Inc (NASDAQ: AAL) for 2024, says Sheila Kahyaoglu – a Jefferies analyst.

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Why does she favour United Airlines stock over $AAL?

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$AAL is down close to 15% at writing after trimming its sales outlook for the current quarter on Wednesday.

The flagship air carrier forecasts up to a 6.0% hit to unit revenues in Q2 versus only 3.0% it had guided for earlier. American Airlines also now expects its adjusted EPS to be capped at $1.15 compared to as much as $1.45 previously.

Sheila Kahyaoglu, therefore, downgraded American Airlines stock this morning to “hold” and slashed her priced objective massively from $17 to just $12.  

On the flip side, she upgraded United Airlines stock to “buy” on Wednesday.

$UAL could extend its rally to $65 per share

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Another update that may be weighing on $AAL today is that Vasu Raja has decided to quit as its chief commercial officer in June.  

In comparison, United Airlines is in the green today after reiterating its profit guidance for the second quarter. The air carrier continues to see its per-share earnings to fall between $3.75 and $4.25 in Q2.

Jefferies analyst Sheila Kahyaoglu, therefore, sees upside in United Airlines stock to $65 that translates to another 30% upside from here. $UAL is already up 40% versus its year-to-date low at writing.

Note that the airline does not currently pay a dividend, though – so that part of its story is not any attractive at the moment.

Why else is she bullish on United Airlines shares?

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Kahyaoglu of Jefferies sees United Airlines stock as a “wealth creation opportunity”.

She lauded the New York listed firm for maintaining its widebody fleet through the COVID pandemic that helped it deliver record international profits last year (well above industry peers).

The analyst agreed that $UAL’s international strength will likely begin to normalise at some point in 2024 but said the upside in its international margin is still adequate to warrant an investment in its stock.

Other reasons she cited for the bullish view on shares of $16 billion company based out of Chicago, Illinois include free cash flow potential and its shareholder-friendly management.

United Airlines Holdings Inc is currently trading at about a 25% discount versus peers on a EV/EBITDA (2025) basis, she told clients in a research note on Wednesday.  

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