Should Value Investors Buy United Airlines (UAL) Stock?

Zacks Equity Research

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One company to watch right now is United Airlines (UAL). UAL is currently sporting a Zacks Rank of #2 (Buy) and an A for Value. The stock is trading with a P/E ratio of 7.46, which compares to its industry's average of 9.32. UAL's Forward P/E has been as high as 9.80 and as low as 6.70, with a median of 7.49, all within the past year.

UAL is also sporting a PEG ratio of 0.37. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. UAL's PEG compares to its industry's average PEG of 0.66. Over the last 12 months, UAL's PEG has been as high as 0.45 and as low as 0.30, with a median of 0.36.

Another notable valuation metric for UAL is its P/B ratio of 2.09. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 2.33. Within the past 52 weeks, UAL's P/B has been as high as 2.78 and as low as 1.86, with a median of 2.26.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. UAL has a P/S ratio of 0.55. This compares to its industry's average P/S of 0.68.

Finally, investors will want to recognize that UAL has a P/CF ratio of 4.72. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. UAL's P/CF compares to its industry's average P/CF of 5.46. UAL's P/CF has been as high as 6.03 and as low as 4.21, with a median of 5.02, all within the past year.

Value investors will likely look at more than just these metrics, but the above data helps show that United Airlines is likely undervalued currently. And when considering the strength of its earnings outlook, UAL sticks out at as one of the market's strongest value stocks.


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