UAL Corp. - Momentum

UAL Corp. (UAUA) just hit a new multi-year high after reporting its first quarterly profit since 2007 that included an 11% earnings surprise. Estimates have since turned higher, providing some nice upward momentum for this Zacks #1 rank stock.

Company Description

UAL Corp., through its subsidiaries, provides air transportation services worldwide. The company was founded in 1934 and has a market cap of $4 billion.

There is no doubt that UAL is on the upswing, fresh off the heels of its first quarterly profit since 2007 on increased business demand, cost controls and a new stream of revenue from baggage fees. Let's take a closer look at its Q2 results from July 22 that sent its shares to a new multi-year high at $25.

Second-Quarter Results

Revenue for the period was up 28% from last year to $5.16 billion. Earnings also came in strong at $1.95, 11% ahead of the Zacks Consensus Estimate. Although this quarter does mark a return to profitability, it has still been exceeding expectations for the last year, with an average earnings surprise of 33% over the last four quarters.

UAL saw gains in a couple of critical areas, with average per-seat revenue up 27%, with its Pacific flights to Asia leading the way with a 57% gain. Cargo revenue was up 57%

With income totaling $273 million for the quarter, its easy to appreciate the affect of an additional $400 million in revenue from baggage fees, a number President John Tague believes could hit $1 billion.

The solid results were also driven by effective cost management, with revenue growth outpacing an 11% increase in expenses to $455 million.

Balance Sheet

The company's balance sheet does look a bit bloated after the recent Continental acquisition, but with its cash position almost doubling from last year to $5.2 billion, management has made it clear it plans to chip away at its debt load moving forward.

Estimates

Estimates have been trending higher for the last few months, with the current year up $1.03 to $4.63 and the next year up $1.42 to $5.64.

Valaution

Airlines stocks typically trade with lower P/E's than the overall market because the industry has seen its fair shares of problems over the last few years. But regardless, UAUA still trades at a huge discount to its industry average with a forward P/E of 5 against 10X.

2-Year Chart

UAUA hit a new multi-year high on the nice quarter, topping off at $25. Look for support from the trend line on any weakness, take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
 
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