Analysts Give United Continental Holdings Inc (UAL) Too Much Slack

United gets a pass
United’s results for the past two years have been mediocre at best, especially in comparison to record earnings at peers like US Airways and Delta. Yet analysts have largely given United a pass, assuming (or hoping) that the company will catch up to competitors “next year”. For example, while analysts currently project that United will earn $3.18 this year, the average 2013 EPS estimate was more than $6 in mid-2012.

Bob McAdoo of Imperial Capital recently told Crain’s that he “can’t think of anything that was particularly bad” in United’s Q2 earnings report. By the company’s standards, he may be right. United’s Q2 profit was just slightly below its profit in the year-ago quarter. Yet Delta managed to grow its Q2 earnings by more than 40% year over year. By that standard, United’s earnings look quite weak.

Foolish bottom line
Like many other companies in the airline industry, United Continental Holdings Inc (NYSE:UAL) has achieved big stock gains in the last year. Just a week ago, the company’s stock hit a new multi-year high. However, United’s competitors have been backing up their stock gains with record earnings. By contrast, United has experienced declining profitability for nine straight quarters.

Analysts have been surprisingly forgiving of United, despite this prolonged period of weak results. While the company is expected to return to earnings growth this quarter — finally — it has a long way to go just to regain its 2010 level of profitability. With United clearly lagging its major competitors, its stock should be performing similarly. Yet United Continental Holdings Inc (NYSE:UAL)’s stock trades at a premium to Delta based on current-year P/E ratio, and in-line with Delta based upon the forward P/E. As a result, analysts and investors should clearly favor Delta in a comparison between the two companies.

The article Analysts Give United Continental Too Much Slack originally appeared on

Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL) and is long September 2013 $33 puts on United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned.

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