Why You Still Need to Avoid United Continental Holdings Inc.

United has struggled to please customers in recent quarters. Credit: Benjamin Beyers for The Motley Fool.

Despite its apparently cheap stock price, investors should avoid United Continental Holdings. (NYSE: UAL  ) . Fool contributor Tim Beyers explains why in the following video.

Customer satisfaction -- or lack thereof -- seems to be the principal issue. Last month's American Customer Satisfaction Index ranked United last among six major airlines. Earlier this week,  J.D. Power & Associates placed the carrier fifth of six big names for customer satisfaction. In each case, peers Delta Air LInes (NYSE: DAL  ) and American Airlines Group (NASDAQ: AAL  ) easily outscored United.

Meanwhile, United's recent business performance suggests that a portion of unsatisfied fliers are seeking better seats elsewhere. The carrier last month reported nearly $500 million in losses in the first quarter. Delta and American each reported hundreds of millions in profits over the same period.

Analysts see a recovery on the way, but Tim says that's still no reason to buy. Why? Consider the math. Wall Street's expectation for 35% annualized earnings growth over the next five years results in a seemingly cheap 0.29 PEG ratio. The trouble is, the sector averages a 0.28 PEG. United is trading at just the sort of mediocre valuation you'd expect from a mediocre airline.

Now it's your turn to weigh in. Are you still flying United? Why or why not? Please watch the video to get the full story and then leave a comment to let us know your take, including whether you would buy, sell, or short United Continental Holdings stock at current prices.

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Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On May 18, 2014, at 4:59 PM, Sunnybloo wrote:

    I've seen for myself how they have cut bathroom sizes in half to add more tiny seats, gotten rid of TV (free and paid) charge too much for internet that never works, don't stock enough food on long flights - even though they charge for it - and have no problem putting only 4 or 5 flight attendants on a plane with hundreds of people. I also heard the coffee is now terrible because they switched from Starbucks to give the coffee contract to a company owned by someone on the board. You know it's bad when I switch to Southwest because it's more comfortable.

  • Report this Comment On May 19, 2014, at 7:09 AM, Eliot41 wrote:

    The 737-900 bathroom size came from Delta, UA just copied it.They have trouble executing everything. There is no manpower to support the operation.If things go badly, say weather. The WiFi is beginning to work better and is more widely available. The new blue thinline seats are more comfortable than the original gray. But no one inside the operation knows anything. There are no experts.So while things may be improving with the "hard product " the operation continues to be in disarray due to lack of knowledge and shortage of staffed manpower. Premium fliers continue to leave in droves. Those still flying UA are unhappy. The frontline employees are miserable and could run the airline better than the current mgmt. IT still a mess. Shares can't price as well as Apollo. Thus the revenue problem.. UA mgmt. continues to use talking points and really has no grasp of what is really happening.

  • Report this Comment On May 19, 2014, at 8:42 AM, AAfool wrote:

    United was a great carrier when it was stand alone. Continental brought little or nothing to the merger. Very little cash and useless hubs,and silly routes, but sure enjoyed taking over. Smisek is a lawyer who is clueless, and arrogant as well. My way or the highway seems to be the motto. And most of the managers have no qualification for the department they head, just friends of friends who got the job. The board needs to wake up, and remove all from the top down. 737's to Hawaii from SFO and LAX ?? Are they for real ?? And reduce the pitch of first class seats to cram another row of coach in ?? American is clobbering them out of JFK and will continue to do so. More comfortable planes, dedicated check in for first and business by real people and not kiosks, and far superior service on board. Business First tends to be a joke, with so so food and so so service. Depends upon the mood. The insight into this merger can be seen by looking at the fleet. Lets scrape Continental off the plane and paint on United. Wow so creative and thoughtful. Lorenzo acquired and destroyed Eastern under the Continental banner, and Smisek is doing the same with United. I hear Bob Crandall is available. Probably could straighten this mess called United out in 6 months. But at this point Ronald McDonald could do an equal job or better than Smisek........

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