Buckingham Lifts United Continental Outlook, Price Target After Q1 Beat

United Continental Holdings Inc UAL reported better-than-expected first-quarter results Tuesday and announced revenue guidance that was higher than Street expectations.

The company made a downward revision to its full-year growth projection, possibly due to the 737 MAX fleet grounding, according to Buckingham Research Group.

The Analyst

Daniel McKenzie maintained a Buy rating on United Continental and raised the price target from $109 to $111.

The Thesis

After Tuesday’s close, the airline holding company reported first-quarter revenue of $9.6 billion, operating income of $513 million and net income of $309 million, which translates to $1.15 per share, McKenzie said in a Wednesday note. (See his track record here.) 

In the domestic market, seat growth is seen as decelerating by 230bps sequentially in the second quarter, while in Europe, growth is expected to slow by 120bps, the analyst said. Despite the slowdown, both figures remain elevated, he said. 

The airline projected full-year EPS at $10-$12. This includes a sequential acceleration in second-quarter RASM by 40bps, which seems conservative, McKenzie said. 

Possibly due to the Boeing Co BA MAX grounding, United Continental seems to be slowing its own growth, the analyst said.

RASM should accelerate more than what the guidance implies, given that competitive capacity is slowing sequentially; demand will be seasonally stronger; and there will be no government shutdown to impact the results, he said. 

Buckingham raised its 2019 EPS estimate for United Continental from $10.40 to $10.62.

Price Action

United Continental shares were trading up 3.82 percent at $88.42 at the time of publication Wednesday. 

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