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United shows significant operating margin, net margin improvement

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Adjusted earnings

United Continental’s (UAL) adjusted EPS (earnings per share) in 4Q14 increased from $0.78 to $1.20, a ~54% increase. Nevertheless, it missed analysts’ target by a slight 0.5% this quarter after exceeding analysts’ estimates for four consecutive quarters.

Wall Street analysts estimated that United’s 4Q14 adjusted EPS would come in at $1.22. The company’s initiatives to improve efficiency through network optimization and cost reduction has paid off. United generated higher margins and earnings per share growth.

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Estimates for 1Q15

United showed considerable profitability improvement in 2014. Its operating margin increased to 6.1% in 2014 from 3.3% in 2013, and its net margin increased to 2.9% from 1.5%. Also in 2014, EPS almost doubled to $2.93, from $1.53 in 2013.

United Continental Holdings (UAL), which operates United Airlines, reported a diluted EPS in 2014 that was higher than Delta Air Lines’ (DAL) $0.78, JetBlue Airways’ (JBLU) $1.19, and Southwest Airlines’ (LUV) $1.64. Meanwhile, its diluted EPS was lower than American Airlines’ (AAL) $3.93 and Alaska Air Group’s (ALK) $4.42.

Wall Street analysts’ estimate for 1Q15 suggest that United will continue to perform well in 2015:

  • revenue – $8,635 million, slightly lower than in 1Q14
  • operating profit – $695.8 million
  • net profit –$454.8 million
  • EPS – $1.17

In contrast, United reported a loss in 1Q14.

Recommendations

Out of the 20 Wall Street analysts who cover United, 16 recommend a “buy” for the stock, giving it an upside of 28% from the current price.

Investors can invest in airline stocks by either buying shares of individual companies or ETFs that hold a portfolio of diverse stocks. ETFs that hold airline stocks include the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN).

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