On Friday, Evercore ISI raised its stance on United Continental Holdings Inc. (NASDAQ:UAL), moving the airline's stock from an "In Line" rating to "Outperform." Accompanying this upgrade, the firm also increased its price target on the shares to $65.00, up from the previous $58.00.
The upgrade reflects the analyst's view that United is poised for a shift in capital allocation strategy, which could serve as a significant catalyst for the company's stock. United's performance has been noteworthy, particularly in terms of network and revenue management, which have contributed to a robust margin recovery relative to its peers. Despite these strengths, Evercore ISI had remained cautious due to United's capital expenditure plans, particularly in aircraft investments, which they felt lacked balance.
United's valuation has been considered attractive, trading at approximately 4 times earnings per share, which is seen as a discounted rate. This valuation, alongside strong execution against the company's targets, has made the airline's stock stand out in the market.
The firm's optimism is further buoyed by recent changes in United's financial leadership, which are expected to influence the company's approach to capital allocation. The potential for a strategic shift in this area, combined with positive industry conditions and an upcoming investor day in May, are anticipated to provide upward momentum for United's shares.
Evercore ISI's note to investors highlighted that while United's shares already held upside risks due to improving conditions in the domestic market, a significant reevaluation of how the company allocates its capital would be a particularly powerful driver for the stock's performance.
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