Long-established in the Transportation industry, United Airlines Holdings Inc (UAL, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 2.48%, juxtaposed with a three-month change of 72.84%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of United Airlines Holdings Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 5/10
- Profitability rank: 6/10
- Growth rank: 5/10
- GF Value rank: 1/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned United Airlines Holdings Inc the GF Score of 67 out of 100, which signals poor future outperformance potential.
Company Overview
United Airlines Holdings Inc is a major U.S. network carrier with hubs in San Francisco, Chicago, Houston, Denver, Los Angeles, New York/Newark, and Washington, D.C. United operates a hub-and-spoke system that is more focused on international and long-haul travel than its large U.S. peers. The company boasts a market capitalization of $34.11 billion and reported sales of $55.994 billion, with an operating margin of 8.36%. This strategic focus on international routes positions United Airlines Holdings Inc uniquely within the competitive landscape of the airline industry.
Financial Strength Breakdown
United Airlines Holdings Inc's financial strength indicators present some concerning insights about the company's balance sheet health. United Airlines Holdings Inc has an interest coverage ratio of 3.09, which positions it worse than 69.39% of 820 companies in the Transportation industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.37, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.46 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.67, which is worse than 92.74% of 882 companies in the Transportation industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 5.94, which is above Joel Tillinghast's warning level of 4 and is worse than 78.85% of 851 companies in the Transportation industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Conclusion
In conclusion, the financial strength, profitability, and growth metrics of United Airlines Holdings Inc, as highlighted by the GF Score, suggest potential underperformance in the future. The company's high debt levels, low cash reserves, and below-average financial ratios indicate significant challenges ahead. Investors should carefully consider these factors when evaluating the company's long-term prospects. For those seeking companies with stronger GF Scores, GuruFocus Premium members can explore more options using the following screener link: GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
