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United Continental (UAL) Stock Gains 28% YTD: Here's Why

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Despite rising fuel costs, United Continental Holdings, Inc. (UAL - Free Report) has performed impressively this year, gaining 27.5% on a year-to-date basis. Also, shares of this Chicago-based carrier have outperformed its industry. Stocks in this industry have collectively declined 14.2% on a year-to-date basis, mainly due to the surge in oil prices.

Let’s delve deep to unearth the reasons behind the impressive price performance of the stock and find out where there is room for further appreciation:

Robust growth of passenger revenues owing to strong demand for air travel has been aiding United Continental for some time and the second quarter of 2018 was no different. In the quarter, passenger revenues increased 8% and accounted for bulk (91.7%) of the top line. Passenger unit revenues (a measure of sales relative to capacity for a carrier) increased 3% in the quarter. This key metric is anticipated to improve 4-6% year over year in the third quarter.

Moreover, in July, the company announced its decision to trim the full-year capacity growth outlook, which is a positive. For 2018, capacity is estimated to expand in the 4.5-5% range compared with 4.5-5.5% projected earlier.

Additionally, the company expects adjusted earnings per share to be in the band of $7.25-$8.75 for the full year. Earlier, the metric was predicted between $7 and $8.50. Efforts to modernize its fleet also raise optimism in the stock. Evidently, United Continental is constantly adding more efficient planes to its fleet and removing outdated ones.

In this scenario of rising fuel costs, a rise in ticket prices is vey much likely. Recently, JetBlue Airways Corporation (JBLU - Free Report) increased fees for checked bags and ticket changes. We expect other airlines, including United Continental to follow suite. This, in turn, should boost the top-line performance of these companies.

Moreover, we are positive on United Continental’s recent decision to transfer its stock exchange listing to The Nasdaq Global Select Market from The New York Stock Exchange. The move, which will be effective Sep 7, is in line with the company’s efforts to check costs.

Key Picks

United Continental carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Transportation sector include Trinity Industries, Inc. (TRN - Free Report) and SkyWest, Inc (SKYW - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Trinity and SkyWest have rallied more than 28% and 83%, respectively, in a year’s time.

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