United Continental Shares Gain Altitude - Analyst Blog

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With airline stocks reflecting a spiraling trend on Monday trade, United Continental Holdings Inc. ( UAL ) topped the show with its shareholders reacting positively to IATA's (International Air Transport Association) bullish view on the North American airline industry. Consequently, United Continental gained $2.33 or 5.25% on Monday trade at the NYSE. The Chicago-based carrier also ended the day substantially higher than the NYSE Composite.

According to the aviation watchdog, North America and Middle East will the best performing regions in terms of profits in 2014 amid looming economic concerns in China and a slowdown in world trade. IATA also expects global revenues in 2014 to reach $746 billion − $1 billion higher than the previous guidance given in March.

The most promising parameter however, is the average return on invested capital, which has risen many folds to 5.4% from a mere 1.4% in 2008. These positives seem to have attracted shareholders toward the aviation sector as most airline stocks ended the day in green.

United Continental's traditional peers like American Airlines Group ( AAL ), Delta Airlines Inc. ( DAL ), Southwest Airlines Co. ( LUV ) and JetBlue Airways ended the day on a positive note. Smaller counterparts like Spirit Airlines and Hawaiian Holdings also finished the day higher than its previous close.

However, the bright picture stands somewhat marred by the lower profit expectation from IATA, which now expects net income to hover around $18 billion, lower than the $18.7 billion forecast made in March. According to the international governing body, rising infrastructure cost, poor air traffic management, heavy tax burden and rising fuel cost will weigh on the industry's bottom line, thus pushing 2014 expected margins down by 10 basis points to 2.4%.

United Continental reported lackluster performance in the first quarter of 2014 owing to a severe winter. The company posted a loss of $1.33 as harsh winter conditions widened the loss to the tune of $200.0 million.

With the weather now looking up, the carrier has since improved its performance. United Continental's April 2014 traffic was up 0.6%, while capacity declined 1.1% leading to a 160 basis point rise in load factor.

As part of its latest efforts, the airline has launched new routes and has introduced the Embraer 175 aircraft between Chicago and top business markets like Washington and Boston. The Zacks Consensus Estimate is also bullish on United Continental and expects the carrier to deliver 33.70% growth in 2014 earnings.

United Continental currently carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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