Will This Downgrade Hurt United Continental Holdings (UAL) Stock Today?

NEW YORK (TheStreet) -- Shares of United Continental Holdings Inc. (UAL) are lower by -0.50% to $41.60 in pre-market trading on Thursday morning following a ratings downgrade to "in-line" from "outperform" at Imperial Capital. 

The firm said it reduced its rating on the airline company as it expects United's operating results to continue to lag behind its peers.

Imperial cut its price target on the stock to $47 from $55.

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Separately, TheStreet Ratings team rates UNITED CONTINENTAL HLDGS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate UNITED CONTINENTAL HLDGS INC (UAL) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Airlines industry and the overall market, UNITED CONTINENTAL HLDGS INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 76.59% to $694.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 63.25%.
  • UNITED CONTINENTAL HLDGS INC's earnings per share declined by 31.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, UNITED CONTINENTAL HLDGS INC turned its bottom line around by earning $1.30 versus -$2.32 in the prior year. This year, the market expects an improvement in earnings ($3.90 versus $1.30).
  • The debt-to-equity ratio is very high at 4.70 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, UAL has a quick ratio of 0.51, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Airlines industry. The net income has significantly decreased by 46.0% when compared to the same quarter one year ago, falling from -$417.00 million to -$609.00 million.
  • You can view the full analysis from the report here: UAL Ratings Report
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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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