How Should You Approach UAL Stock Following Q1 Earnings Beat?

Core Viewpoint - United Airlines reported better-than-expected earnings per share for Q1 2025, indicating strong financial performance despite tariff-induced uncertainties [1][2]. Financial Performance - Q1 2025 earnings per share (excluding non-recurring items) were 91 cents, surpassing the Zacks Consensus Estimate of 75 cents, and a significant improvement from a loss of 15 cents per share in the same quarter last year [3]. - Operating revenues reached $13.21 billion, slightly below the Zacks Consensus Estimate of $13.22 billion [3]. - Premium cabin and basic economy revenues increased by 9.2% and 7.6% year over year, respectively, while business revenues rose by 7.4% [4]. Market Conditions - Domestic travel demand was weak due to tariff-induced uncertainties, but international revenues remained strong, particularly for long-haul travel, with Atlantic unit revenues up 4.7% and Pacific unit revenues up 8.5% year over year [5]. - UAL's earnings beat was the fourth consecutive quarter of positive surprises, with an average beat of 10.3% [5]. Future Guidance - UAL provided dual earnings per share guidance for 2025: between $11.50 and $13.50 in a stable environment, and between $7 and $9 in a recessionary environment [6]. - To address weak demand, UAL plans to reduce scheduled domestic capacity by 4 points starting in Q3 2025 [7]. Industry Context - Airline stocks, including UAL, have underperformed due to a slowdown in domestic air travel demand, with UAL shares down 31.5% year-to-date [10]. - The decline in oil prices, which fell 8.6% year over year in Q1 2025, is expected to benefit UAL's bottom line by reducing fuel expenses [13]. Shareholder Initiatives - UAL announced a $1.5 billion share buyback plan, the first since the suspension during the COVID-19 pandemic, with $451 million repurchased through April 10 [14]. - UAL is trading at a discount compared to industry levels based on the forward 12-month price-to-sales ratio, with a Value Score of A [15]. Investment Outlook - Despite attractive valuation and shareholder-friendly initiatives, headwinds such as tariff-induced uncertainty and high labor costs are significant concerns [17]. - Declining earnings estimates further complicate the investment outlook, leading to a recommendation to avoid UAL stock until market conditions stabilize [18].