Where Will United Continental Go Next?

With shares of United Continental (NYSE:UAL) trading around $30, is UAL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

United Continental is a holding company and its principal wholly owned subsidiaries are United Air Lines and Continental Airlines. The company transports people and cargo through its mainline and regional operations; it also has contractual relationships with various regional carriers to provide regional jet and turboprop service branded as United Express. Companies and consumers worldwide look to travel at increasing rates since air travel is quicker and is becoming less expensive. As costs decrease and flights become more efficient, United Continental stands to see soaring profits as consumers and businesses look to travel more than ever.

T = Technicals on the Stock Chart Are Mixed

United Continental stock has seen rising prices over the last several years. However, after a decent run, the stock has been trading sideways as it consolidates. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, United Continental is trading between its key averages which signal neutral price action in the near term.

UAL

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of United Continental options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

United Continental Options

48.74%

80%

79%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Steep

Average

October Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on United Continental’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for United Continental look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

35.96%

27.94%

-38.10%

-98.82%

Revenue Growth (Y-O-Y)

0.62%

1.38%

-2.53%

-2.58%

Earnings Reaction

-1.91%

-1.59%

2.15%

-4.98%

United Continental has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have not been too happy about United Continental’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has United Continental stock done relative to its peers – Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), and US Airways (NYSE:LCC) — and sector?

United Continental

Delta Air Lines

Southwest Airlines

US Airways

Sector

Year-to-Date Return

28.66%

64.45%

29.98%

16.44%

25.93%

United Continental has been an average relative performer, year to date.

Conclusion

United Continental provides access to quick and efficient air travel to consumers and companies across the nation. The stock is currently trading sideways as it digests gains from a recent surge higher. Over the last four quarters, investors in the company have not been too happy as earnings and revenue figures have been mixed. Relative to its peers and sector, United Continental has been an average year-to-date performer. WAIT AND SEE what United Continental does in coming quarters.

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