Assessing the Q4 Performances
The recent Q4 earnings announcements have captured the attention of investors, particularly in the airline industry. United Airlines (UAL) and American Airlines (AAL) have drawn significant interest due to their international reach, distinguishing them from regional carriers such as Southwest Airlines (LUV) and Alaska Air Group (ALK).
Despite the challenging quarters faced by both companies, attributed to the sharp rebound in travel during Q4 2022, American and United managed to exceed their quarterly top and bottom line expectations.
American Q4 Review
American Airlines’ standout performance saw Q4 earnings of $0.29 per share, significantly surpassing the Zacks Consensus of $0.06 a share by 383%. Additionally, quarterly sales of $13.06 billion slightly exceeded estimates of $13.02 billion. Importantly, American has now exceeded earnings expectations in six consecutive quarters, with an impressive average earnings surprise of 119% in its last four quarterly reports.
United Q4 Review
In the case of United Airlines, the company reported Q4 earnings of $2.00 per share, surpassing expectations of $1.61 per share by 24%. Likewise, sales of $13.62 billion slightly exceeded estimates of $13.54 billion. United has also consistently outperformed earnings expectations for six consecutive quarters and posted an average earnings surprise of 18% in its last four quarterly reports.
Evaluating the Attractiveness
Both American and United stocks are currently trading at significant discounts to the Zacks Transportation-Airline Industry average of 10.3X forward earnings, with American at 6.9X and United at just 4.3X. This valuation is notably lower than many regional carriers, such as Southwest, trading at 18.9X forward earnings, and Alaska Air at 8X.
Conclusion
The strong Q4 results reinforce the notion that American Airlines and United Airlines stocks are undervalued. Despite the traditionally sluggish first quarter for air travel, both stocks hold a Zacks Rank #3 (Hold), which could potentially be rewarding for longer-term investors.