United Continental (UAL) Stock Falling Amid Drop in Airline Sector

NEW YORK (TheStreet) -- Shares of United Continental (UAL) are down by 10.36% to $54.51 on heavy volume in late afternoon trading on Wednesday, as the airline industry takes a hit today.

Stocks within the airline sector are plummeting, with Southwest (LUV) seeing its biggest drop in three years this afternoon and American Airlines (AAL) is having its worst day since coming out of bankruptcy in 2013, Bloomberg reports. The online publication added that airline stocks are falling due to signs that a year filled with low fuel costs has left airlines positioned to increase competition for customers with cut-rate fares and more routes

Carriers are able to finance expansion projects and offer customers less expensive flights as oil prices remain near $60 per barrel, Bloomberg noted.

Another contributing factor to the slump in airline stocks is the rally in the price of oil. The commodity is up amid a decline in U.S. crude prices and tensions in the Middle East. Fuel is an airlines largest expense.

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 solid stock price performance, impressive record of earnings per share growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and poor profit margins."

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

  • Powered by its strong earnings growth of 179.51% and other important driving factors, this stock has surged by 47.40% over the past year, outperforming the rise in the S&P 500 Index during the same period. Although UAL had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • UNITED CONTINENTAL HLDGS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, UNITED CONTINENTAL HLDGS INC increased its bottom line by earning $2.79 versus $1.30 in the prior year. This year, the market expects an improvement in earnings ($11.07 versus $2.79).
  • UAL, with its decline in revenue, slightly underperformed the industry average of 0.9%. Since the same quarter one year prior, revenues slightly dropped by 1.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for UNITED CONTINENTAL HLDGS INC is currently lower than what is desirable, coming in at 28.11%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.90% trails the industry average.
  • The debt-to-equity ratio is very high at 4.08 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.
  • You can view the full analysis from the report here: UAL Ratings Report

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