UAL: Merrill Lynch Slashes UAL's Earnings Estimates

Author:
Publish date:

United Airlines' parent UAL (UAL) - Get Report hit some Merrill Lynch turbulence after the firm's analysts Candice Browning and Mike Linenberg slashed its September EPS view to 30 cents from $2.00 and full-year estimates to $5.80 from $8.25 due to the company's operational problems. The First Call/Thomson Financial 11-analyst estimate for the third quarter was $1.75 and for the year was $7.84.

The analysts revised their estimates after looking at the airline sector's solid revenue environment, higher fuel prices as well as disruptions at United.

"With the continued dichotomy of high fuel prices and strong revenue growth, we think earnings won't break out to new highs, and that the stocks will remain in their trading bands. Our favorite stocks are

Delta

(DAL) - Get Report

,

American

(AMR)

and

Southwest

(LUV) - Get Report

," they wrote in a note this morning.

The research note forecasts an 8.3% increase in system unit revenue for the September quarter, but it's offset by an even stronger outlook for oil, with the average price of fuel in the September quarter expected to increase 40% year-over-year.

Merrill Lynch noted that it's currently acting as financial advisor and has rendered a fairness opinion to UAL, in connection with its acquisition of

US Airways

(U) - Get Report

. It also said UAL has agreed to pay a fee to Merrill Lynch for its financial advisory services, a significant portion of which is contingent upon the consummation of the proposed acquisition.