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Bear of the Day

We are downgrading our recommendation on United Continental (UAL) to Underperform on projections of a weak first quarter. Although United Continental would benefit from merger synergies, global network, leading unit revenue growth, strong competitive position, fleet and network optimization, hedging strategies and a strong liquidity position, we believe surging fuel prices and the threat of recession in Europe pose downside risks to the stock.

Additionally, high non-fuel costs related to fleet optimization and product initiatives, high unionization, new advertising rules, competitive threats, and risks pertaining to the Continental integration could hurt the company's profitability going forward.

These negative factors are expected to overshadow the future growth prospects of United Continental. Thus, we have an Underperform rating with the target price of $19, based on 4.8x our earnings estimate for 2012.

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