Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of United Continental Gained 11.4% in April

By Lou Whiteman – May 6, 2019 at 9:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The airline's restructuring plan remains on schedule.

What happened

Shares of United Continental Holdings (UAL -4.01%) rose 11.4% in April, according to data provided by S&P Global Market Intelligence, as the airline was able to brush off continuing concerns about Boeing's 737 MAX airplane and deliver strong quarterly results. It's a fresh sign that the airline's turnaround strategy is advancing as planned.

So what

On April 16, United reported first-quarter adjusted earnings of $1.15 per share, easily beating the $0.94 consensus estimate. Revenue of $9.59 billion matched expectations. United Continental earned $0.49 per share in the first quarter of 2018.

A United Continental 737 taxis towards the runway.

United Continental has been flying high despite issues with the 737 MAX. Image source: United Continental.

The airline has been an underperformer in recent years, but it has taken dramatic steps to streamline operations and rethink its flight schedules and route maps to try to move closer to rivals, including Delta Air Lines. In a statement accompanying the earnings release, CEO Oscar Munoz said, "We delivered another strong financial quarter in which we made important progress on our customer investments while making strategic decisions to manage our costs and producing pre-tax margin growth that we expect will lead our peers."

Total passenger revenue was up 7.1% in the quarter, and passenger revenue per available seat mile increased 1.1% year over year, while unit cost per available seat mile declined 2.1%. United was also optimistic, saying it expects pre-tax margins to improve to 11% to 13% in the second quarter, up from 10.4% a year prior.

Now what

The news wasn't all good for United Continental. The airline is an operator of the still-grounded 737 MAX, leading to 130 flight cancellations in April and a projected 900 cancellations in May.

The real issue for United Continental is that the airline still trails Delta in key financial metrics. Delta, for example, expects its adjusted pre-tax margin to be between 14% and 16% this quarter. Yet United Continental trades at a premium to Delta, currently valued by the market at 10.7 times earnings versus Delta's 9.7 multiple.

United Continental management deserves high marks for the job it has done turning the airline around. But it's Delta, and not United, that deserves a premium valuation, raising questions about how much higher United shares can climb.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$33.07 (-4.01%) $-1.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.