Macquarie Cites Valuation Concerns In United Continental Downgrade

Shares of United Continental Holdings Inc (NASDAQ: UAL) have seen consistent momentum since July, and the company is the only airliner stock trading near an all-time high. Investors may want to consider taking some profit off the table and rotate into rival stocks with a better outlook, according to Macquarie Research. 

The Analyst

Analyst Susan Donofrio downgraded United Continental Holdings from Outperform to Neutral with an unchanged $95 price target.

The Thesis

United Continental's stock is trading within striking distance of Macquarie's $95 price target, which implies there are better picks in the airline stock sector moving forward, Donofrio said in the downgrade note.

The stock is trading at 9.1 times the analyst's 2019 EPS estimates or 9.2 times consensus estimates, levels that are "well-matched" to its earnings story, the analyst said. 

A downgrade of United Continental is purely valuation-based, as the airline has developed a reputation of executing well on its commercial initiatives and is among the top U.S. carriers in terms of on-time departures, Donofrio said. United Continental also made the right decision in cutting marginal flying as needed to achieve EPS expectations, she said. 

Macquarie's new top airline picks, ranked in order of preference, are as follows:

• Delta Air Lines, Inc. (NYSE: DAL)
• Spirit Airlines Incorporated (NYSE: SAVE)
• American Airlines Group Inc (NASDAQ: AAL)
• Hawaiian Holdings, Inc. (NASDAQ: HA)
• Southwest Airlines Co (NYSE: LUV)

Price Action

United Continental shares were trading near-flat at the time of publication Tuesday at $90.19. 

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