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Imperial Capital Bullish On United Following 18% 2016 Selloff

Shares of United Continental Holdings Inc UAL have lost 18 percent year to date. The company has a number of strengths and its problems are “fixable,” Imperial Capital’s Michael Derchin said in a report. He initiated coverage of United with an Outperform rating and a price target of $57.


Derchin cited the key strengths of United as:

  • Great domestic hubs in San Francisco, Newark, Houston, Denver and Chicago
  • An Asia Pacific footprint is larger than many of its peers

Moreover, the company is generating significant FCF, while also investing in the business. The analyst estimated $2.8 billion in FCF in FY16.

Fixable Problems

United has faced challenges after its merger with Continental Airlines in October 2010, Derchin pointed out. He added, however, that the recent appointments of CFO Andrew Levy and Chief Commercial Officer Julia Haywood would likely improve United’s “problem solving skills,” while providing “an entrepreneurial bent, which, in our view, were attributes in short supply at this “mega-carrier” in recent years.”

United has received ratification of a new labor contract by flight attendants, following an extended period of negotiations after the merger. This development should “finally permit integration of United and Continental workers, which we expect to improve morale and productivity,” the analyst wrote.

Moreover, in case mechanics also ratify the recent agreement reached with the Teamsters union, “UAL’s goal of having long-term contracts in place with all key unions should also be finally realized,” the Imperial Capital report noted.

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Aug 2016Imperial CapitalInitiates Coverage onOutperform
Jul 2016JP MorganMaintainsOverweight
Jul 2016Deutsche BankUpgradesHoldBuy

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