Goldman Sachs analysts upgraded United Airlines stock to ‘buy’…
In recent months, economic weakness in China has been a drag on United Airlines’ stock. But according to analysts at Goldman Sachs, these concerns have been largely overrated.
On Wednesday, Goldman Sachs analysts upgraded United Airlines from neutral to buy. In a note to investors, analysts Catherine O’Brien and Joyce Koltisko said they think it’s likely the company’s stock will perform better during the second half of 2019.
The company’s shares rose 1.7% in premarket trading to $81.85 per share. However, the analysts did hold United Airlines’ price target of $109 per share.
But, there’s some turbulence in the air…
Challenges Facing United Airlines
According to O’Brien, United’s stock is trading much too low and has a lot of potential upside. The stock is trading at 7.5% its estimated 2019 earnings, which is lower than most stocks in the S&P 500.
United’s stock has fallen largely over concerns about the company’s exposure to China. However, O’Brien pointed out that this exposure has gone down in recent years and currently only accounts for 4% of the company’s capacity.
Like other airlines, United continues to manage the fallout from the fatal Boeing 737 crash in March. Earlier this week, the company announced it would be extending the grounding of all 737 MAX flights until August. This means the company will have to cancel around 2,400 flights in June and July.
However, United does have a number of positive changes on the horizon. The company is preparing to launch a co-branded credit card with JP Morgan Chase. O’Brien said that this move could add as much as 10% to the company’s earnings.
Conclusion
United Airlines’ shares have declined more than 16% since its 52-week high in December. However, it has fared better than some of its competitors in the airline industry.
For instance, American Airlines has seen its shares fall much farther than United. And after upgrading United, the analysts downgraded Spirit Airlines, calling the company’s stock “volatile.”
And according to analysts at Goldman Sachs, the company could experience an upside of as much as 32% in the latter half of the year. Given that its shares are already fairly underpriced, now may be a good time to buy into the company’s stock.
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