Why United Continental Holdings Inc. Shares Could Level Off

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of United Continental Holdings Inc.  (NYSE: UAL  ) slipped about 1% this morning after Imperial Capital downgraded the airline giant from outperform to in line.

So what: Along with the downgrade, analyst Bob McAdoo lowered his price target from $55 to $47, representing about 12% worth of upside to Wednesday's close. So while contrarian traders might be attracted to United's year-to-date price sluggishness, McAdoo's call could reflect a sense on Wall Street that its growth prospects are just too limited to trigger a significant spike. 

Now what: According to Imperial, United's risk to reward trade-off isn't too attractive relative to other airline operators. "[W]e expect operating results to continue to lag peers," McAdoo said. "1Q14 pre-tax earnings also lagged both Delta Air Lines and American Airlines Group by approximately $1bn each. Over the next several quarters, we expect shares of UAL to continue to lag the share performance of DAL and AAL much as they have year to date." Given Jefferies' solid stock-picking track record -- currently ranked in the top 10% of our CAPS community -- United bulls should consider that possibility betting too heavily on a turnaround. 

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  • Report this Comment On June 30, 2014, at 6:45 AM, Eliot41 wrote:

    United is still having trouble with it's crew scheduling system. It's overloaded and malfunctioning resulting in flights not scheduled with crews and no one knows they're not scheduled. It added block hours for June and is lacking flight attendants and pilots to cover the increase. Ask any employee and they will tell you the airline is in disarray.

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