How To Trade United Airlines Amid Its Internal Investigation

• Shares of United Continental Holdings, Inc. UAL have declined 12.67 percent year to date.
• Imperial Capital’s Scott Buck has maintained an In-Line rating and price target of $65 on United Continental.
• The company announced management changes associated with its internal investigation in connection with the ongoing federal investigation.

After market close on September 8, United Continental announced the replacement of CEO Jeff Smizek with Oscar Munoz, effective immediately. This changes follows the completion of the internal investigation related to the federal investigation into the company’s dealings with the Port Authority of New York and New Jersey.

According to the Imperial Capital report, “Multiple publically disseminated news reports suggest the airline may have added a weekly flight in 2012, at the request of Port Authority Chairman David Samson, between Newark, NJ and Columbia, SC, where Mr. Samson owned a weekend home.”

This unprofitable route was discontinued soon after the resignation of Mr. Samson from the Port Authority in March 2014. The company had revealed in February 2015 that a federal investigation was ongoing and could lead to “fines or other disciplinary action” in future.

“Recent operating guidance suggests that, despite being approximately midway through its cost cutting plan, UAL’s operating margins are likely to continue to lag legacy peers,” Buck stated, while adding that the stock was expected to trade in-line with the management’s commentary regarding PRASM trends, “rather than record profits and margins.”

While trends are expected to turn more positive for the company and the broader airline industry in 2016, Buck believes that the management is already taking advantage of the lower jet fuel prices to further deleverage the balance sheet and return capital to shareholders.

Buck also believes that the company’s operations “and strategy are likely to remain unchanged in the near term,” despite the change in leadership.

“Longer term, we believe Mr. Munoz’s experience in the transportation industry… and experience working with organized labor should prove beneficial in this new role,” Buck added.