Market Overview

J.P. Morgan Analyzed US Airways, Notes United Continental's Disappointment


In a report published Friday, J.P. Morgan analyst Jamie Baker analyzed US Airlines following earnings reports and specifically noted United Continental's disappointment.

United Continental Holdings Baker reduced 2014 earnings outlook, the PT, and downgraded United Continental Holdings, Inc. (NYSE: UAL) after discouraging Q4 guidance.

J.P. Morgan anticipates a loss for United Continental and reduced the equity PT from $32.50 to $25.00. The analyst ceded that the downgrade to Underweight appears justified.

Compared with other airlines, United shares are trading high at 13x 2014 estimated earnings. Delta Airlines Inc. (NYSE: DAL) shares are currently trading at 10x estimated earnings and US Airways Group, Inc. (NYSE: LCC) shares are at a small 6x earnings.

Further, Baker commented, “We believe UAL will have a difficult time maintaining 2014 ex-fuel CASM below the 2 percent level given labor headwinds (we are +2.2%) that when coupled with $3.05/gallon fuel and 3.5% revenue growth produce merely $3.80 in earnings, by our estimates, relative to the $4.40 consensus.” Although United operating margins will improve faster than US Airways, it is not expected to overtake the margin at Delta.

Southwest Airlines

The analyst raised Southwest Airlines (NYSE: LUV) PT from $12.50 to $14.50 following a positive 2014 earnings outlook.

Delta and US Airways

J.P. Morgan commented, “our expectations ask little of Delta's or US Airways' management aside from staying the course and maintaining momentum.” Baker noted that he is simply “more comfortable” recommending cheaper stocks.


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