Why I'm Not Buying United

By now you've probably heard that UAL (Nasdaq: UAUA  ) has officially emerged from bankruptcy, with a new stock and a pressurized cabin full of hope. But exactly no one on the Street is buying it.

And I mean that literally. The shares are down more than 8% as I write this morning. Analyst sentiment probably isn't helping. says that two firms, Bear Stearns (NYSE: BSC  ) and Calyon, have initiated coverage with ratings of "underperform" and "sell," respectively.

Normally, such petulant pessimism would have me thinking "buy." Not today. When United first announced its exit strategy in September, a spokesperson told me that the company would raise close to $1.9 billion in capital, and that its shares were likely to be priced at or near $15 per stub. Today's opening price was -- wait for it -- $41 a share.

And I say: What?!?

United has done exactly nothing to justify a 173% premium on its shares. To the contrary; investors ought to be demanding a huge discount. Why, you ask? When I checked under the hood last month, I found that owner earnings had declined over the trailing 12 months. Don't expect a fast turnaround, either. After all, United made it clear that it needs oil to be at $50 per barrel to sustain profitability. Oil remains at roughly $66 a barrel as I write today.

But the story gets worse. The Pension Benefit Guaranty Corporation, which absorbed UAL's failing pensions, now owns about 20% of the restructured company. It has already signaled its intent to sell half that position to raise cash to cover obligations. That should lead to additional selling pressure, which, naturally, would drive the stock price down even more.

Add it all up, and I can only conclude that United's stock is a pure loser at current levels. When it drops a lot more, I might consider getting in. That's assuming United can find a profitable means to manage the careful balance between fuel prices and low-cost competition, which may not happen soon. Buckle your seat belts, United investors. You're in for a bumpy ride.

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Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this story at the time of publication, but he has family who are retired from United Airlines. You can find out what's in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.

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