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Strong Dollar + Buybacks = Big Upside for United Airlines Stock
Written by Gabriel Osorio-Mazilli. Published 10/22/2025.
Key Points
- United Airlines stock is gaining momentum, driven by macroeconomic tailwinds including lower fuel costs, a strong U.S. dollar, and rising demand for domestic and international travel.
- The company posted strong quarterly earnings, highlighted by a 6.7% year-over-year increase in free cash flow and nearly $600 million in stock buybacks, signaling management's confidence.
- Forward guidance suggests significant valuation upside, with projected EPS between $9.00 and $11.00 and price targets implyinga 37% gain from current levels.
After a rally of 7.8% in a single week, shares of United Airlines Holdings Inc. (NASDAQ: UAL) are catching investor attention once again.
The stock's recent surge isn't just a short-term technical move; it is being fueled by improving fundamentals and strong forward guidance. Favorable macro trends are also helping, though low oil prices alone aren't the only reason airlines like United are profitable. There is a larger currency move that may boost domestic travel consumption.
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Click here to see how the "weekly dividend" setup worksAs the dollar index breaks out of its multi-month range, it enhances purchasing power domestically, making travel more attractive for U.S.-based consumers. This rising trend is a potential driver behind the recent momentum in the transportation sector, including airline stocks.
In fact, many of First Trust Nasdaq Transportation ETF's (NASDAQ: FTXR) top holdings are airline stocks, indicating broader market confidence in the group. This momentum presents a fresh opportunity for further upside in United Airlines.
Q3 Earnings Reveal Strong KPIs and Margins
United's recent quarterly earnings results show investors where growth is coming from and which key performance indicators (KPIs) to watch going forward. It's understandable to be cautious when looking at a stock that trades near 86% of its 52-week high, but the report suggests much of the company's future growth potential is not yet fully priced in.
Available seat miles, a standard KPI in the airline industry, grew 6.6% for the United States and Canada and 5.3% internationally. This increase in capacity indicates that, despite inflation and budget uncertainty, travelers remain willing to spend on this discretionary item.
A key insight from the earnings call is that United's premium seating footprint hit a record high in both available seats and bookings. That growth positions United not only as a volume player but also as a premium competitor, supporting higher revenue per seat and improved margin potential.
Further helping margins, aircraft fuel costs dropped 11.4% year-over-year, providing immediate relief to the company's bottom line. With cost savings and rising demand converging, United Airlines is well-positioned to expand profitability.
While EPS often grabs headlines, free cash flow (FCF) is crucial for capital-intensive businesses like airlines. In the past quarter, United reported $3.4 billion in FCF, up from $3.1 billion a year earlier — roughly a 9.7% increase. Strong FCF allows the company to return capital to shareholders, which it's actively doing.
The company repurchased $589 million worth of stock, signaling management's belief that shares are undervalued. Buybacks not only boost EPS but also serve as a clear vote of confidence in future performance.
Valuation Leaves Room for Takeoff
Following a robust quarter, management raised full-year EPS guidance to a range of $9.00 to $11.00. Even at the midpoint ($10), the valuation story looks attractive.
With UAL stock trading at roughly a 10x P/E ratio compared to the transportation industry's average of 15x, there appears to be clear upside.
Applying the sector average to the low end of guidance implies a fair value near $135 per share, and about $165 on the high end.
This outlook represents a notable divergence from the analyst consensus price target of $125, which implies roughly 25% upside from current levels.
More bullish analysts, such as Evercore's Duane Pfennigwerth, have set price targets near $135, suggesting even larger potential gains.
Opportunity Is Still on the Runway
With demand holding steady, margins improving, and guidance pointing higher, United Airlines stock appears undervalued relative to its growth outlook. Tailwinds from a stronger dollar and the possibility of Federal Reserve rate cuts through 2025 could further support travel volumes.
As long as United continues to generate strong cash flows and return capital to shareholders through buybacks, the path to a higher valuation looks open. For both new and existing investors, UAL offers a compelling case for long-term appreciation, backed by solid fundamentals and market momentum.
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