United Continental Holdings Inc UAL reported fourth-quarter results Tuesday and provided an update to its outlook that prompted at least one Wall Street analyst to drop their bullish stance.
The Analyst
Evercore ISI's Duane Pfennigwerth downgraded United Continental's stock rating from Outperform to In Line with a price target lowered from $78 to $75.
The Thesis
United Continental's earnings report and subsequent investor update at the New York Stock Exchange contained a combination of "puts and takes," Pfennigwerth said in the downgrade note. (See the analyst's track record here.)
On the positive side, the company's outlook appears to be "as high as ever," as the airline thinks it can regain domestic share in its hubs and simultaneously boost its margins, the analyst said.On the other hand, management offered no evidence of a path toward margin expansion, and margins declined for the past six quarters, he said.
United's higher growth pitch bodes well ahead of contract negotiations in 2019, but also limits any broader participation from longer-term investors who are "seeking confidence" at this point in the cycle, the analyst said.
United's 2018 earnings guidance was a "modest positive" that, at the very least, will "reinforce current year accountability," which was absent throughout 2017, Pfennigwerth said. While this "takes a significant downside case off the table for now," United has failed to demonstrate an ability to adjust its plans, which is a requirement to support a bullish stance on the stock, he said.
Price Action
United Continental shares were down 9.98 percent at $70.19 at the time of publication early in Wednesday's trading session.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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