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Here's Why You Must Hold onto United Continental for Now

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United Continental Holdings, Inc. (UAL - Free Report) has been making news lately for all the wrong reasons. This March, three consecutive unpleasant pet-related incidents took place. One such tragic event caused the death of a passenger’s pet. However, despite a pessimistic cloud revolving around its customer service for a while now, United Continental has its share of pluses.

Let’s look into the positives:

Robust growth of passenger revenues owing to strong demand for air travel has been aiding United Continental for some time. The company’s top line in the second quarter is expected to benefit from the same.

Unit revenues have also been increasing of late. Notably, passenger revenue per available seat mile (PRASM: a key measure of unit revenues) rose 2.7% year over year in the first quarter. Moreover, the company is likely to perform well on the unit revenue front in the second quarter as well. Passenger unit revenues are projected to increase 1-3% year over year in the current quarter.

In fact, strong first-quarter results have led the company to issue an upbeat adjusted earnings guidance for the full year. The company now anticipates adjusted earnings per share in the band of $7-$8.50 for 2018, up from its previous forecast in the range of $6.50-$8.50.

Further, the company’s persistent capacity-related woes have been put to rest for a while. This is because the carrier has trimmed its capacity view for 2018. It now predicts the metric to grow between 4.5% and 5.5%. Earlier outlook was an expansion in the 4-6% range.

United Continental’s initiatives to expand operations worldwide are a further positive. To this end, the carrier recently announced several new routes from its East Coast hubs at New York/Newark and Washington-Dulles. The carrier also strengthened its relationship with Air New Zealand. Under this new deal, flights connecting Chicago with Auckland will be operational from Nov 30, 2018 onward.

Moreover, United Continental announced that its flights connecting San Francisco with Auckland, currently a seasonal service, will be operational throughout the year (thrice a week) effective April 2019.

The bullish sentiment surrounding the stock is evident from the Zacks Consensus Estimate for second-quarter earnings being moved 6.3% north in the last 60 days. Also, the consensus mark for full-year earnings has been revised 5.5% upward in the past 90 days.

The company also has a commendable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.

We note that shares of the company have rallied 15.5% in the past six months, massively outperforming the industry’s decline of 6.3%.


Amid such positives, we advise investors to retain the United Continental stock for now.

Zacks Rank & Key Picks

United Continental has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) , Expeditors International of Washington, Inc. (EXPD - Free Report) and SkyWest, Inc. (SKYW - Free Report) . While Expeditors sports a Zacks Rank #1 (Strong Buy), GATX and SkyWest carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX, Expeditors and SkyWest have gained more than 21%, 39% and 65%, respectively, in a year.

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