Shares of United Airlines (NASDAQ:UAL) have certainly encountered some turbulence as of late. United Airlines stock is now lower year to date, even on the heels of an impressive earnings beat. Tariff turmoil and higher oil prices certainly have taken their toll, but look for UAL stock to begin a turnaround over the coming weeks.
United Airlines stock was upgraded yesterday by Morgan Stanley. Analyst Rajeev Lawani noted the solid execution and strategy for UAL compared to the other airlines. Morgan upped United Airlines stock to a buy. The price target was raised from $101 to $110.
United Airlines Stock by the Numbers
The fundamentals certainly support an upgrade to UAL stock. The current price-to-earnings ratio is now below 10, a big discount to both the overall market and the five-year average for United. Other valuation metrics, such as Price/Cash Flow and Price/Sales, are also well below the norm for United. Price/Book is now at the cheapest level since 2009. A multiple expansion seems likely at these levels for United stock.
UAL reported earnings on April 16 with EPS coming in well above expectations at $1.15 versus consensus estimates of just 94 cents. Shares gapped higher by almost 5% following the release but have since fallen 10% from the highs. United Airlines stock is now trading some 4 points lower than it was the day before earnings even with a 22% earnings beat. The combination of better earnings and a lower stock price makes UAL decidedly more attractive.
United stock is also looking attractive from a technical perspective. There is major horizontal support at the $79 level. The 9-day RSI is strengthening after touching oversold readings below 30.
Click to Enlarge MACD is turning higher after reaching negative levels that have corresponded with significant lows previously. UAL is trading well below the 20-day moving average at $85.74 which has signaled the potential for a pop in the past.
Most importantly, United Airlines stock saw a reversal day yesterday. UAL opened lower and made a new recent low, only to pivot and close higher on the day. This type of price pattern is many times a sign that the sellers may finally be getting exhausted and that the buyers have taken control.
Investors should look to add United Airlines stock to the portfolio on any weakness. Option traders may elect to position to be a buyer on a dip by selling the June $79 puts and buying the June $77 for a 40-cent net credit.
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