This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

United Analysts Rush to Reduce Estimates on Weak Outlook

CHICAGO ( TheStreet) -- JPMorgan analyst Jamie Baker downgraded United (UAL - Get Report) on Friday, saying he anticipates a fourth-quarter loss and doesn't see good value by comparison with other airlines. A number of other analysts joined Baker in reducing estimates.

Baker's downgrade came after an unusual earnings call that online travel commentator Joe Brancatelli called an "excuse-a-thon." Brancatelli wrote on Twitter that executives including CEO Jeff Smisek left out one excuse: "The dog ate Smisek's spreadsheet."

United shares closed Thursday at $31.30, up 34% for the year. Shares were falling 3.3% to $30.27 on Friday.

Baker downgraded the shares to underweight and reduced his price target to $25 from $32.50. He said he views 2014 consensus estimates as too high and likely to diminish. Analysts surveyed by Thomson Reuters were estimating 2014 earnings at $4.02 as of Friday morning. Baker said he once expected earnings of $5.40 a share "but we were unprepared for UAL's underwhelming guidance."

Baker noted that other airlines offer more compelling investment opportunities. Based on his revised forecasts, United trades at 13 times 2014 earnings, while Delta (DAL) trades at 10X earnings and US Airways (LCC) trades at 6X earnings. "Our expectations ask little of Delta's or US Airways' management aside from staying the course and maintaining momentum, (while) even our reduced expectations for United require relatively heavy lifting by management," he wrote.

In United's earnings release on Thursday, Smisek promised prompt action. But the level of action outlined on the earnings call was underwhelming.

On the call, executives enumerated three problems during the third quarter: 1) inaccurate demand forecasts led United to book too many low-yield tickets early in the quarter, reducing the opportunity to sell tickets closer-in at higher yields; 2) the Boeing 747 fleet was assigned to San Francisco to enable more preventive maintenance at the San Francisco maintenance base, diminishing the opportunity to deploy 747s elsewhere; and 3) the competitive pressure on China routes mounted due to increased capacity.

Other analysts were more sympathetic than Baker was, but at least four others joined him in reducing estimates. Wolfe Research Analyst Hunter Keay wrote Friday that United's passenger revenue per available seat mile guidance "of a 1% year over year decline in the fourth quarter resulted in a massive cut to our estimates, but the guide was accompanied with a sense of urgency and a plan to fix it."

Deutsche Bank analyst Mike Linenberg said he had expected a 2013 recovery for United, but now will wait until 2014. "Our call was that 2013 would be United's year to shine," Linenberg wrote in a report on Thursday. "We might have been premature in our thesis, considering that United's margins have been below the industry's average for the last few quarters.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
UAL $51.50 0.00%
AAPL $126.44 0.00%
FB $87.28 0.00%
GOOG $523.40 0.00%
TSLA $280.02 0.00%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs