Continental, Southwest in Holding Patterns - TheStreet



) -- Stifel Nicolaus analyst Hunter Keay maintains a hold recommendation for

Continental Airlines

(CAL) - Get Report

following uninspiring commentary from Continental's management during the company's fourth quarter earnings call.

Keay has a $20.15 price target for Continental.

"Results were solid, particularly given seasonal weakness in fourth quarter and poor industry-wide pricing," Keay wrote. "However, management's commentary on the earnings call was decidedly cautious," he explained in a note to investors.

Continental reported EPS, excluding exceptional items, of 3 cents, in line with Stifel Nicolaus's estimate and above the consensus estimate of -7 cents.

Keay said the preliminary January PRASM (passenger revenue per available seat mile) estimate of -3% year-over-year came in below Stifel Nicolaus' forecast of +5%. Stifel Nicolaus notes this estimate could prove conservative as close-in bookings -- which carry higher yields -- are gradually improving.

Stifel Nicloaus remains optimistic about 2010 PRASM growth, but based on January PRASM, believes first quarter 2010 consensus estimates will likely be adjusted downward.

"Plenty of time remains on easy comps, which do not bottom until June," Keay wrote. "Nevertheless, we are reducing our first quarter consolidated PRASM estimate for CAL from +6.6% to +5.3%."

Keay adds that given the volatility and unpredictability of oil prices, Stifel would feel more comfortable seeing Continental's hedge book at least relatively in line with other network carriers.

Continental Airlines

(CAL) - Get Report

stock is up 1.9% at $20, while


( UAUA) has edged lower at $13.20, down 0.3%.

US Airways


has risen 2% to $5.30, and

Delta Air Lines

(DAL) - Get Report

inched lower to $13.30, down 0.3%.

Stifel notes that shares of Continental are trading at a premium to the group average which, under previous circumstances, might be warranted given Continental's historical PRASM outperformance relative to peers.

Stifel says it is difficult to justify significant upside potential relative to peers who appear less expensive, have similar growth prospects, and also appear to be outperforming CAL on PRASM.

Separately, Stifel has a hold recommendation for

Southwest Airlines

(LUV) - Get Report

with a $11.68 price target. Southwest Airlines stock has fallen 2.1% to $11.40.

Stifel writes that Southwest Airlines' ability to drive PRASM through the first half of 2010 should not be underestimated as the company continues to report industry-leading load factor growth and presumably gain share for a variety of reasons.

Stifel believes significant load factor upside remains and Southwest Airlines will likely continue to report higher volumes, partly from its Bags Fly Free campaign.

"However, problematic non-fuel CASM (cost per available seat mile) growth and a roughly break-even hedge book serve as offsets, contributing to near-term headwinds," Keay writes. "In addition, we foresee challenges once load factors peak and management attempts to drive yields."

For the fourth quarter, Southwest reported EPS, excluding exceptional items, of 10 cents, above Stifel's estimate of 6 cents.

-- Reported by Andrea Tse in New York

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