(Bloomberg) -- Shares of United Airlines Holdings Inc. have been on a tear lately, outpacing rivals as investors pile back into the once-unloved airline sector. However, despite the huge run-up in the stock, analysts are confident the rally has more room to run.
United’s shares jumped more than 37% in October, their best monthly return since surging 40% in February 2010. The recent gains have propelled United’s 93% year-to-date rise, trouncing peers Delta Air Lines Inc. and Alaska Air Group Inc. which have risen 44% and 24% respectively. If the gains hold through the end of the year, it’ll be the stock’s best annual performance on record.
“United is representative of a broadening of the market,” said Jane Edmondson, head of thematic strategy at TMX VettaFi. “If we continue to see this growth trend over the next few quarters, it’s definitely going to be on people’s radars,” she added.
So what’s behind investors’ heightened appetite for the stock? Industry-wide plans to cut back on unprofitable routes over the summer have contributed to strength within the sector more broadly, with the S&P Supercomposite Airlines Sub Industry Index trading around levels unseen in nearly three years.
Earnings from United pushed gains further after the Chicago-based carrier reported third-quarter profit in mid-October that beat Wall Street’s projections. Subdued oil prices are also a big help as aviation fuel is one of the industry’s biggest expenses. United’s stock closed Friday at its highest level since February 2020, climbing for a record-extending 13 straight weeks.
United has also been reaping the benefits of numerous tailwinds including corporate and international travel momentum, monetization of its MileagePlus frequent flier program and savvy investments such as incorporating Starlink Wi-Fi across its fleet, according to TD Cowen analyst Tom Fitzgerald.
But the outperformance has not come without bouts of turbulence for the cyclical sector. Airline share prices are at the mercy of fuel price swings and furthermore, aircraft delivery delays and a well-publicized labor dispute at Boeing Co. have presented headaches for the airline industry. The shortage of airplanes is forcing customers like United to find alternatives, such as keeping older and more inefficient planes in service, which puts pressure on costs.
The 14-day relative strength index on United, which shows short-term buy and sell signals, continues to sit above 70, indicating it may be overbought. This typically suggests a correction may be approaching.
But for now, Wall Street is overwhelmingly positive on the stock, which has 20 buys, one hold and one sell rating, according to data compiled by Bloomberg. The stock’s average 12-month price target of about $87 implies roughly 8% more upside from Friday’s close.
“We’re not the only investors out there that are bullish on the stock because it’s in the footprints of the price action,” according to Michael Matousek, who oversees the $1 billion US Global Jets ETF, which counts United as its top holding.
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