United Continental Holdings Inc (NYSE:UAL) — Tuesday’s tragic crash of a Germanwings Airbus A320 in the French Alps put pressure on the airline sector this week, creating a good entry point for traders and investors.
In late January, S&P Capital IQ issued a positive outlook on the airline industry despite harsh weather grounding many flights and cutting into profits this winter. Longer term, its analysts see lower fuel costs, good supply/demand balance and free cash flow generation benefiting the sector.
In addition to United Continental, Capital IQ has “buy” recommendations on five other airlines: Delta Air Lines, Inc. (NYSE:DAL), JetBlue Airways Corporation (NASDAQ:JBLU), Spirit Airlines Incorporated (NASDAQ:SAVE), Southwest Airlines Co (NYSE:LUV) and Alaska Air Group, Inc. (NYSE:ALK). Of these, however, I favor United for its low average P/E ratio and trading potential.
Capital IQ has a “strong buy” rating on UAL stock and projects the company will improve the pace of its integration of Continental Airlines this year. This could lead to additional leverage and accelerate earnings growth. Its analysts estimate operating earnings will increase 84% in 2015 to $9.32 per share.
UAL stock ran from a low under $40 in October to a high just below $75 in January. Since then, shares have consolidated above a well-defined support line at about $65. This line is supported by three buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR).
Wednesday’s 3.1% decline should be viewed as an extraordinary buying opportunity for both traders and investors.
Buy UAL stock at the market with a trading target of $73, which is 11% above current prices. Investors should hold shares for a 40% run to Capital IQ’s 12-month target of $92.
