United Continental (UAL) Hits 52-Week High With Room To Run
Zacks Investment Research | May 23, 2017 03:26AM ET
Shares of United Continental Holdings (NYSE:UAL) hit a 52-week high of $79.20 during the course of the trading session on May 22, before retracing a bit to close the session at $78.92. In fact, shares of this Chicago-based carrier have performed very well over the last one month. The stock rallied 13.5% comfortably outperforming the Zacks categorized Transportation- Airline industry’s gain of 1.7%.
The recent impressive performance of the stock marks a solid turnaround from the Apr 9 incident on flight 3411 at Chicago’s O’Hare International Airport. The well-documented “passenger dragging” incident earned the company criticism from all quarters across the globe.
Turnaround Efforts Impressive
Notably, the company has left no stone unturned to restore its battered image. It has refunded to all the 70 passengers on board the infamous flight. Moreover, CEO Oscar Munoz has issued multiple apologies.
The carrier also changed its policy on crew-booking to avoid repetition of the incident. United Continental announced 10 measures like limiting the use of law enforcement for safety and security issues to improve the flying experience of travellers as well. In fact, the efforts found favor with investors as reflected by the northward movement of the stock price lately.
Strong Q1 Results – A Key Catalyst
United Continental released impressive first-quarter results on Apr 17, when it was still reeling from the infamous incident. In addition, the company reported better-than-expected earnings per share and revenues in this background, providing the much-needed relief to the battered stock.
Moreover, revenues expanded 2.7% on a year-over-year basis. While, passenger revenues increased 2.6% to $7,174 million, cargo and other revenues increased 13.4% and 1.5%, respectively, thereby boosting the top line. In fact, the carrier has a solid earnings history outshining the Zacks Consensus Estimate in each of the last four quarters.
We are impressed by the carrier’s guidance for passenger unit revenue in the second-quarter 2017. While, United Continental expects the metric to increase in the band of 1% to 3%, it projects pre-tax margin (adjusted) in 10%–12% range in the quarter..
Other Impressive Factors
Apart from the strong earnings report, United Continental's efforts to reward shareholders raise optimism. In the first quarter of 2017, the carrier bought back $313 billion of its common stock. As of Mar 31, 2017, the company had $1.5 billion remaining under its current buyback program.
Get The News You Want
The carrier’s April traffic report is also impressive. Consolidated traffic, measured in revenue passenger miles, increased 7.4% year over year to 17.6 billion driven by impressive results on the international as well as domestic front. Load factor (percentage of seats filled by passengers) increased 260 basis points to 83.1% in Apr 2017, as capacity expansion (4%) was outweighed by traffic growth.
The company's expansion-related efforts also raise optimism. Evidently, the company announced its decision to boost its service connecting San Francisco to other multiple destinations recently.
The above bullish factors are reflected in the company’s Zacks Rank #1 (Strong Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months. You can see .
Estimate Revisions
Upward estimate revisions reflect optimism in a stock’s prospects. United Continental scores impressively on this front as well with the Zacks Consensus Estimate for the current quarter climbing 1.4% over the last seven days to $2.20 per share. Similarly, Zacks Consensus Estimate has increased 14.5% to $7.19 per share for full-year 2017 in the same time span.
Additionally, United Continental's trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 30.6% also compares favorably with ROE of 29.8% for the Zacks categorized Transportation-Airline industry.
Other Stocks to Consider
Apart from United Continental, investors interested in the airline space may also consider Hawaiian Holdings (NASDAQ:HA) , Deutsche Lufthansa (OTC:DLAKY) and Ryanair Holdings (NASDAQ:RYAAY) . All three stocks possess the same bullish rank as United Continental.
The Zacks Consensus Estimate has increased 8.1% to $5.19 per share for the current year at Hawaiian Holdings over the last month.
The Zacks Consensus Estimate has increased 49.5% to $2.87 per share for the current year at Deutsche Lufthansa over the last month.
The Zacks Consensus Estimate has increased 3.2% to $5.85 per share for the current year at Ryanair Holdings over the last month.
Zacks' 2017 IPO Watch List
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One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Zacks Investment Research
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