Opinions
Bruce Tatters
United Continental Holdings
UAL-N
TOP PICK
Jan 10, 2017
Stock price when the opinion was issued
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Airline stocks have a tendency to be volatile. There is some seasonality in the spring time and you get a time in the summer when the stock does well. Looking at the charts, he does not see a seasonal pattern. Technically the chart shows it is forming a nice little base and is in a very tight trading range. One thing that is positive is that it is trading near the bottom of its trading range. If it holds the low of around $38, that is going to be a good sign. If it moves above the $60 level, you are going to see another move to the upside. Nothing special here. You want to be in stocks that are outperforming, and this is not in that category.
The airline holds 35% more international capacity than its nearest US competitor and just hit an all time single day volume day. It trades at 7x earnings, under 2x book and supports a robust 32% ROE. Cash reserves are growing while debt is aggressively retired. We recommend setting a stop-loss at $41, looking to achieve $72 -- upside potential of 18%. Yield 0%
(Analysts’ price target is $71.65)
About 15-20 years ago, the top 10 airline carriers in North America only accounted for about 15% of the air volume, and now the top 4 account for 80% of all traffic. This has turned itself into a really, really good oligopoly, so they have pricing power. The interesting thing is that the airline group still trades at about 4.5X EBITDA, because people still have long memories of when they were horrible. (Analysts’ price target is $81.09.)