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United Continental Hits 52-Week High: Bull Run to Continue?

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Shares of United Continental Holdings (UAL - Free Report) attained a 52-week high of $95.08 during the course of the trading session on Nov 23 before retracing a bit to close at $94.84. In fact, this Chicago-based airline company has performed well on a year-to-date basis. The stock has soared 40.7% against its industry’s 15.5% decline.

 

Let’s delve deeper to unearth the reasons behind this impressive share price rally and find out whether there is room for further appreciation:

Robust growth of passenger revenues owing to strong demand for air travel has driven United Continental’s top line for quite some time. Evidently, passenger revenues, accounting for bulk of the top line, increased 8.8% in the first nine months of 2018.

Per Airlines for America (A4A), the ongoing Thanksgiving holiday period (Nov 16-Nov 27) will be extremely busy for all U.S. carriers. Such an upbeat forecast further confirms strong demand for air travel. Additionally, air fares are still low despite high fuel costs. Moderate ticket prices have also contributed to this favorable projection. Given a bullish backdrop, we expect passenger revenues to boost United Continental’s top line in the final quarter of 2018.

Additionally, low tax rates are aiding the bottom line and the trend is likely to continue going forward. Effective income tax rate for the fourth quarter is likely to be in the 20-21% band. Efforts to modernize the company’s fleet also raise optimism on the stock. The airline is constantly adding more efficient aircraft to its fleet and removing the outdated models.

We are also hopeful about United Continental's attempts to expand its operations and reward shareholders through buybacks. The carrier's bullish guidance for current-year earnings is highly encouraging. United Continental now expects 2018 earnings between $8 and $8.75 per share (earlier outlook predicted earnings in the range of $7.25-$8.75).

The carrier is well on track to achieve its 2020 adjusted earnings per share view of $11-$13. In fact, this Zacks Rank #3 (Hold) stock’s expected earnings per share growth rate is pegged at 21.6% for the next five years, much higher than the industry average of 13.1%. Furthermore, the company’s top Momentum Score of A highlights its short-term attractiveness. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Investors interested in the Zacks Transportation sector may consider Air France-KLM SA (AFLYY - Free Report) , Frontline Ltd. (FRO - Free Report) and Spirit Airlines, Inc. (SAVE - 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 Air France, Frontline and Spirit Airlines have surged 35.1%, 33.8% and 35.6%, respectively, in the past six months.

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