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United Continental Holdings: Is UAL a Solid Value Stock?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put United Continental Holdings, Inc. UAL stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, United Continental has a trailing twelve months PE ratio of 8.19, as you can see in the chart below:



This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.85. If we focus on the long-term PE trend, United Continental’s current PE level puts it slightly below its midpoint of 9.54 over the past five years. Moreover, the current level stands much below the highs for the stock, suggesting that it could be a solid entry point.
 


Further, the stock’s PE also compares favorably with the Transportation sector’s trailing twelve months PE ratio, which stands at 15.89. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 


We should also point out that United Continental’s forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, United Continental has a P/S ratio of about 0.54. This is significantly lower than the S&P 500 average, which comes in at 3.13 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.



Broad Value Outlook

In aggregate, United Continental currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes United Continental a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) for United Continental is 3.77, a level that is lower than the industry average of 4.48. Clearly, UAL is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though United Continental might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade and Momentum score of B, each. This gives UAL a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen four estimates go higher in the past sixty days compared to three lower, while the full year estimate has seen nine upward and no downward revisions in the same time period.

This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has risen by 2.4% in the past two months, while the full year estimate has increased roughly 8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Thanks to this bullish trend, the stock boasts a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.

Bottom Line

Clearly, United Continental is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Along with a solid Zacks Rank, the stock possesses a strong industry rank (Top 13% out of over 250 Zacks industries). Incidentally, over the past one year, the industry has clearly surpassed the broader market, as you can see below:



So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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