UAL Bets on Twelve for Sustainable Aviation Fuel: Is the Stock a Buy?

In line with its environment-friendly approach, United Airlines UAL recently announced an investment in Twelve, an innovative low-carbon fuels company. Twelve makes use of a process that is similar to photosynthesis to transform carbon dioxide and water into sustainable aviation fuel (“SAF”), a cleaner alternative to traditional jet fuel, using renewable energy.

UAL’s investment in the maker of Power-to-Liquid fuels is part of the Chicago-based company’s Sustainable Flight Fund. The fund, designed to back new ideas that can make air travel cleaner, supports UAL’s goal of cutting aviation emissions by 90% by 2050.

We remind investors that UAL launched the Sustainable Flight Fund in 2023, intending to make flying greener. The fund, backed by multiple major companies, has grown to more than $200 million currently. The fund’s main goal is to expedite the development and production of SAF. Instead of relying on carbon offsets, UAL aims to directly reduce emissions at the source by expanding SAF availability. The investment in Twelve may play a crucial role in helping the aviation industry transition to more sustainable operations, particularly because of the increasing pressure for greener travel options.

However, does this move by UAL make the stock worth betting on? Let’s delve deeper to answer the question.

Some Positives for UAL

The southward movement of oil price bodes well for the bottom-line growth of United Airlines. This is because fuel expenses are a significant input cost for aviation industry players. Crude oil is struggling in 2025, with prices sliding to multi-month lows. Tariff concerns, weakening consumer confidence, and production increase by OPEC+ have all resulted in this downward pressure. Expenses on aircraft fuel and related taxes declined 8.6% year over year in the first quarter of 2025, aiding UAL’s bottom line.

UAL’s balance sheet further underscores its strength. Investor-friendly initiatives add another layer of appeal. In October, UAL announced a $1.5 billion share buyback plan, highlighting its pro-shareholder approach. This was the first buyback program announced by UAL since it suspended share repurchases during the COVID-19 pandemic. UAL repurchased shares worth $451 million through April 10.

From a valuation perspective, UAL is trading at a discount compared with the Zacks Transportation- Airline industry, going by the forward 12-month price-to-sales ratio. The company has a Value Score of A. UAL’s reading is lower than Delta Air Lines DAL but higher than American Airlines AAL.

UAL’s P/S F12M Vs. Industry, AAL & DAL

UAL’s Tepid Price Performance

Due to tariff-induced slowdown in domestic air travel demand, airline stocks have performed dismally so far this year. UAL and other key players in the industry, such as Delta Air Lines and American Airlines, declined significantly in the year-to-date period, underperforming the industry. Shares of Delta Air Lines, United Airlines and American Airlines have plunged 15.5%, 19.1%, and 33.1%, respectively.

YTD Price Comparison

What Do Earnings Estimates Say for UAL?

Despite the recent signs of easing tariff woes and in the absence of a concrete long-term trade deal, earnings per share estimates for first-quarter 2025, second-quarter 2025, full year 2025 and 2026 have moved south over the past 60 days.

Best to Avoid UAL Stock Now

There is no doubt that UAL stock is attractively valued. The company’s shareholder-friendly initiatives and low fuel costs add to its appeal. However, due to the tariff-induced uncertainty, UAL offered a dual full-year 2025 earnings outlook last month. In a stabilized environment, UAL expects its 2025 adjusted EPS to be between $11.50 and $13.50. In a recessionary environment, UAL expects 2025 adjusted EPS to be between $7 and $9. Adding to the woes, high labor costs are hurting UAL’s bottom line. Declining earnings estimates also do not help matters. 

Given the current turbulence, we can safely say that despite the recent environment-friendly update, it is not at all advisable to buy UAL stock now. Until there is more clarity, investors should avoid United Airlines stock.

UAL currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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