UAL Asset Sale/Breakup
Drop in United Airlines (UAUA) provides buying opportunity
Posted Aug 16th 2007 12:47PM by Eric Buscemi
Filed under: UAL Corp (UAUA), Bargain stocks, Stocks to Buy
UAL Corporation (NASDAQ: UAUA), the parent of United Airlines, got beat up pretty good along with the rest of the airline group yesterday.
However, investors should not stampede away from this sector, or more specifically, from UAL. As discussed in a Bear Stearns report released yesterday, the airline, which recently emerged from bankruptcy, continues to explore ways to utilize its massive cash hoard of $5 billion to maximize shareholder value, $1 billion of which management believes is excess cash.
Also, UAL is seeking ways to unlock value for its Mileage Plus program, a business that generates $800 million per year in revenue and has a large deferred revenue stream which provides some visibility for future revenue. Aeroplan, the Canadian-based loyalty marketing service business that was spun off from Air Canada's holding company, sells for a 60% premium to its former parent and a 200% premium on an enterprise value/EBITDA basis to the pure airline, Air Canada.
The Bear report places a $65 price target on UAL, with the asset break-up value of the company going as high as $80. Operational turnaround, huge free cash flow generation and the potential to realize value for the mileage plus business are all cited as reasons that could lead to a considerably higher stock price.
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To see an analyst talk about breaking the company apart is eye-opening.
No airplanes on order
Nothing from Tilton about the future other than operational status quo (keep the stock/cash flow up)
SFO Maint. Base is for sale
Mileage Plus is for sale
If I were a UAL employee, merger would be the least of my worries.