We are upgrading our recommendation on United Continental Holdings (UAL) to Outperform. Though we remain concerned about escalating fuel prices, United Continental is able to pass on higher costs to its customers in the form of fare hikes. The company's first quarter earnings soared on higher fares despite steeper fuel prices.
We believe United Continental will continue to benefit from merger synergies, global network, strong competitive positioning, low costs, fleet optimization and a strong liquidity position. The trend of combating rises fuel prices with higher fares is also likely to continue. In addition, United Continental hedges its fuel position that restricts its losses and provides increased profitability.
The stock is trading at a discount to the peer group as well as the S&P 500 benchmark. We are recommending an Outperform rating with the target price of $27, based on 7.2x our earnings estimate for 2011.
Be the first to comment