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Thursday, UBS has adjusted its outlook on United Continental Holdings Inc (NASDAQ:UAL), reducing the price target to $107 from the previous $140 while maintaining a Buy rating on the stock. Thomas Wadewitz, an analyst at UBS, cited weaker first-quarter trends and ongoing consumer softness as the primary reasons for the revision. Currently trading at $74.02, UAL maintains a market capitalization of $24.17 billion and trades at a P/E ratio of 7.71. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with 11 analysts recently revising their earnings expectations downward.
In a recent statement, Wadewitz noted that presentations and commentary from the airline industry have highlighted softening demand in the first quarter, which is expected to persist as a challenge. Consequently, UBS has revised its earnings per share (EPS) forecasts downward for several airlines, including United Continental. The new 2025 EPS estimate for United Continental has been lowered by 12%, alongside reductions for other airlines such as Alaska Air Group (NYSE:ALK), Spirit Airlines (OTC:SAVEQ) (ULCC), Allegiant Travel Company (NASDAQ:ALGT), and JetBlue Airways (NASDAQ:JBLU). Despite these challenges, InvestingPro data shows UAL’s projected FY2025 EPS at $12.99, with the company maintaining strong revenue of $57.06 billion in the last twelve months.
The revised price targets reflect a more cautious view of the airline sector, with expectations of softer demand and revenue per available seat mile (RASM) performance that is 2 to 3 percentage points worse than previous forecasts. Alongside the price target cut for United Continental, UBS has also lowered its targets for Alaska Air Group to $75 from $87, Allegiant Travel to $61 from $93, and Spirit Airlines to $7 from $10.
Despite these downward revisions, UBS has upgraded its rating on Southwest Airlines (NYSE:LUV) to Neutral from Sell. This adjustment comes amidst the broader recalibration of expectations within the airline industry as companies navigate through a period of softer consumer demand. United Continental and its peers are now working within the framework of these updated financial projections as they strategize for the year ahead.
In other recent news, United Airlines has reported strong financial results for the fourth quarter of 2024, surpassing analysts’ expectations with an earnings per share (EPS) of $3.26, compared to the forecasted $2.93. The airline’s revenue also exceeded forecasts, reaching $14.7 billion against an anticipated $14.34 billion. Fitch Ratings has upgraded United Airlines’ Issuer Default Rating from ’BB-’ to ’BB’, citing the company’s reduction of its adjusted debt balance by $3 billion in 2024 and a positive outlook on future financial performance.
Additionally, United Airlines has announced the resumption of its New York-Tel Aviv service amid a cease-fire in Gaza, marking it as the first U.S. airline to resume service to Tel Aviv this year. The airline plans to introduce a second daily flight to Israel starting March 29. In other developments, rising oil prices due to new tariffs have raised concerns about increased operating costs for major U.S. airlines, including United Airlines.
Despite these challenges, United Airlines continues to maintain high cash balances and has a strong liquidity position, ending the year with $17.4 billion in liquidity. The company’s investments in its network and loyalty program offerings have improved its market position in strategic hubs across the U.S., allowing it to benefit from premium pricing compared to its peers. Fitch expects United Airlines to generate significant free cash flow in 2025, driven by a healthy operating environment and reduced capital spending.
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