Will United Continental Continue Its Path to Higher Prices?

With shares of United Continental Holdings (NYSE:UAL) trading around $32, 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 Holdings 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.

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T = Technicals on the Stock Chart are Strong

United Continental Holdings stock has recently broken above a consolidation range established over the last two years. The stock looks set to test prices not seen since before the 2008 Financial Crisis. 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 Holdings is trading above its rising key averages which signal neutral to bullish price action in the near-term.

UAL

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

United Continental Holdings Options

43.82%

43%

40%

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

July Options

Average

Average

August Options

Average

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing 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 Holdings’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for United Continental Holdings look like and more importantly, how did the markets like these numbers?

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2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

27.94%

-38.10%

-32.50%

-5.37%

Revenue Growth (Y-O-Y)

1.38%

-2.53%

-2.58%

1.33%

Earnings Reaction

-1.59%

2.15%

-4.98%

-5.92%

United Continental Holdings has seen mostly decreasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have expected a little more from United Continental Holdings’ recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

United Continental Holdings

Delta Air Lines

Southwest Airlines

US Airways Group

Sector

Year-to-Date Return

38.67%

59.77%

35.55%

27.85%

31.72%

United Continental Holdings has been a relative performance leader, year-to-date.

Conclusion

United Continental Holdings provides access to quick and efficient air travel to consumers and companies across the nation. The stock has recently broken out and looks keen to test prices not seen since before the Financial Crisis. Over the last four quarters, investors in the company have expected a little more as earnings have decreased a bit while revenue figures have been mixed. Relative to its peers and sector, United Continental has been a year-to-date performance leader. WAIT AND SEE what United Continental does in coming quarters.

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