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United Continental Earns Upgrade On Revenue Lift-Off Steps

United Continental Earns Upgrade On Revenue Lift-Off Steps

United Continental Holdings Inc (NYSE: UAL)'s active steps to address areas of revenue weakness in 2017 has left an analyst at Buckingham Research Group impressed.

The Analyst

Buckingham's Daniel McKenzie upgraded his rating on United Continental from Neutral to Buy and raised his price target from $65 to $81.

The Thesis

United Continental countered the revenue weakness theme in 2017 through network/fleet changes and commercial initiatives, McKenzie said in a note. The analyst also sees the company benefiting from a favorable macro backdrop, including forex and tax reform, with the former boosting booking strength and the latter positive, given its longer-term cash implications.

"All in, we have greater confidence that revenue likely surprise to the upside in 2018 (also in part from gutted comps)," the analyst said.

Buckingham expects a sequential improvement in pricing to reduce business model risk among investors, which the firm feels is a key input for the shares to rerate higher.

As such, Buckingham raised its earnings per share estimate for 2018 by 13 percent, premised on a lower tax rate. The firm also upped its fourth quarter earnings per share estimate from $1 to $1.05.

"Our revised model factors in negative RASM in 4Q17 swinging positive beginning in 1Q18 with 2018 consensus not particularly meaningful at this point given tax reform," McKenzie said. He sees a favorable risk-reward scenario, with the probability of upside at 58 percent compared to 15 percent for downside.

The Price Action

Shares were grounded for much of the year, having lost about 10 percent for the year-to-date period. The upgrade served to give a small lift to the stock, as it has added 2.7 percent to $66.17.

Related Links:

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JPMorgan On Airlines: Consensus Estimates 'Appear Increasingly Unachievable'

Latest Ratings for UAL

Apr 2021Raymond JamesMaintainsOutperform
Apr 2021Argus ResearchUpgradesHoldBuy
Apr 2021JP MorganMaintainsUnderweight

View More Analyst Ratings for UAL
View the Latest Analyst Ratings


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