Recent Sizable Run Up In United Continental Leads Imperial To Downgrade

Shares of United Continental Holdings Inc UAL have gained nearly 45 percent since August 23. The run up has been driven by “positive management changes, labor agreements, and improvement in close-in bookings,” Imperial Capital’s Michael Derchin said in a report. He commented that the stock now appears fairly valued.

Derchin downgraded the rating on the company from Outperform to In Line, mentioning that gains going ahead would likely depend on “how successfully management executes its plan.” The price target has been raised from $65 to $76. The new price target is about 10 percent higher than the recent share price.

Derchin reduced the EPS estimates for FY 2017 and FY 2018 from $6.50 to $6.25 and from $8.24 to $8.00, respectively, to reflecting the impact of the recently ratified labor agreements.

Investor Day Takeaway

United Continental hosted its investor day on November 15 and laid out its strategy to narrow the margin gap with its Big 3 peers, namely American Airlines Group Inc AAL and Delta Air Lines, Inc. DAL, “through commercial enhancements and operational and cost structure improvements,” the analyst wrote. He added that the company seemed to have “a path to closing the margin gap,” provided it is able to successfully execute the plan.

United Continental closed Monday trading up 1.03 percent at $68.99 and is up roughly 20 percent year-to-date.