On Dec 24, Zacks Investment Research upgraded United Continental Holdings Inc. (UAL), the parent company of United Airlines, to a Zacks Rank #2 (Buy).
Why the Upgrade?
Ever since the Chicago, IL-based company announced robust third-quarter 2014 earnings on Oct 23, shares have jumped more than 31% driven by positive estimate revisions. Incidentally, United Continental has delivered positive earnings surprises in all of the last four quarters, with an average beat of 6.4%.
In the third quarter, United Continental posted adjusted earnings of $2.75 per share, ahead of the Zacks Consensus Estimate of $2.70. We are also impressed by the cost containment efforts of the company. United Continental, like many of its peers, is benefiting from low fuel costs. Fuel costs account for a major chunk of an airline's operating costs. Moreover, an improving economy is also benefiting carriers.
We are also impressed by United Continental’s efforts to expand through the launch of new routes. Only recently, the company announced its plans to start non-stop flights between Chicago and Rome effective May 16, 2015, subject to government approval. Initially, United Airlines will run five flights every week between Jun 4 and Aug 17 and then escalate operations to six flights in the Aug 18–Sep 23 period.
We expect the carrier to continue its impressive performance in 2015 as well. The Zacks Consensus Estimate for 2015 has moved up by $2.34 to $8.72 per share over the last 60 days, representing a 72.53% growth over the estimated EPS figure for 2014.
Other Stocks to Consider
Apart from United Continental, investors interested in the airline sector may consider stocks like Southwest Airlines (LUV), Delta Air Lines (DAL) and Ryanair Holdings (RYAAY). All the three stocks sport a Zacks Rank #1 (Strong Buy).
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