United Continental (UAL) Slips to 52-Week Low: Here's Why

Shares of United Continental Holdings UAL tumbled to a 52-week low of $56.60 on Nov 14. However, the figure recovered marginally to close the trading session at $57.20, down 1.06% from the closing price of Nov 13.

In fact, shares of the carrier have underperformed the Zacks Airline industry on a year-to-date basis. The stock has been down 21.5%, as against the industry’s growth of 6.2%.

 

What's Pulling the Stock Down?

United Continental, like its peers such as American Airlines Group AAL, had to cancel multiple flights due to the recent hurricanes. This is because Harvey has affected United Continental the most as Houston is the carrier’s second-largest hub.

In fact, the carrier’s results in the third quarter of 2017 were also hurt due to Harvey. The company cancelled 8,300 flights due to Harvey, Irma, and Maria. Consequently, its third-quarter pre-tax income was adversely affected to the tune of approximately $185 million.

Moreover, the company's bottom line in the third quarter of 2017 was impacted by the surge in labor and fuel costs. Earnings in the quarter declined 28.6% year over year due to higher costs. However, average fuel price per gallon (on a consolidated basis), excluding hedge losses, increased 14.1% year over year to $1.70. Also, consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses and profit sharing — increased 2.6% year over year, primarily owing to the labor deals inked by the company.

Passenger unit revenue (PRASM) declined 3.7% in the reported quarter mainly due to the weather-related disruptions. United Continental expects consolidated PRASM to decline between 1% and 3% (year over year) in the final quarter of 2017.

In fact, shares of this Zacks Rank #3 (Hold) stock fell approximately 12% on Oct 19 despite reporting better-than-expected earnings per share and revenues. The lack of clarity provided by the company, on the conference call, pertaining to its efforts to check costs and boost revenues disappointed investors. Consequently, the stock tumbled, registering its biggest one-day percentage decline in the past eight years.

We are also concerned about the capacity overexpansion at United Continental. In fact, on the third-quarter conference call, the company announced that it will continue to expand capacity in a bid to maintain market share at major airport hubs to deal with competition from discount carriers like Spirit Airlines SAVE.

Load factor (percentage of seats filled by passengers) declined in the quarter as capacity expansion outweighed traffic growth. The metric declined in the month of October as well, due to the same reason.

A Key Airline Pick

Investors interested in the airline space may consider Deutsche Lufthansa DLAKY, which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Deutsche Lufthansa have gained more than 100% in a year.

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United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
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