UAL stock rebounds, but analysts aren’t sure the turbulence is over

Airline stocks have been stuck in a frustrating cycle as a range of factors from rising fuel costs and weaker consumer sentiment to delays, staffing issues, and safety concerns. Most recently, geopolitical tensions tied to Iran sent oil prices higher and dragged airlines down again.

But this week, shares of United Airlines bounced as oil prices cooled slightly. Now comes the test to determine whether this is the start of a recovery or just a temporary boost.

What’s behind the rough descent?

Before this week’s rebound, UAL stock had been sliding steadily throughout the month as investors reacted to surging jet fuel costs, increased selectivity across the consumer discretionary sector, and the airline’s mixed earnings report.

While United reported solid year-over-year revenue growth of 4.8% to hit $15.4 billion and beat analysts’ profit estimates, some other metrics came up short compared to forecasts.

With the entire industry highly exposed to global factors beyond their control, there’s reason for Wall Street to remain cautious. Nevertheless, travel demand has been resilient and oil prices might be leveling out, both of which could bode well for UAL’s long-term growth narrative.

Does this make United a buy?

Institutions clearly haven’t given up on the company, with big money in control of about 70% of the company’s shares. Lansdowne Partners recently increased its stake by 28.5% and Wall Street generally agrees that UAL has upside potential.

• Jeffries issued a $148 price target with its “buy” rating
• Bernstein sees roughly 50% upside with its $136 target
• The consensus is “moderate buy” with targets in the low $130s.

The bull case is being driven by strong travel demand, even among economy passengers. And the stock has historically seen strong rebounds following sharp selloffs.

But bearish signals like thin profit margins and the industry’s cyclical nature are keeping estimates grounded.

For better or worse, airline stocks like UAL are driven more by external forces than corporate execution.

As a diversification strategy, buying the dip could pay off if history repeated and United sees a sharp rebound. But even the bulls acknowledge the flight higher is likely to encounter some more turbulence.