Low & Slow

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.

Bucking Bar

Massive cash hoard? How about giving some of it to the employees who's retirements got robbed? Or repay the amount dumped on the PBGC that all of us taxpayers without retirements get to contribute to?

7576United

But you're not.

Wheels up

Just remember that this stuff has nothing to do with employees or stockholders, but rather how much money the execs can siphon out of a deal. They break up the company and sell it to the devil if they thought they could make a killing.

HSLD

That's exactly right, the board's job is to return value to the shareholders. Shareholder value and labor relations are not mutually exclusive.

400Driver

There was a time when directors and executives toiled to ensure the success of the franchise and being the best company on the block was the prime directive.

Alas, we are in an era now where it's all about the payout and concern for the enterprise or those in it's employ are not even in the decision tree.

You all be careful out there.

Lambourne

On the SFO MOC being up for sale, where is your link? If you talk to the UA mechanics in SFO you will hear them saying UA is actually getting good business at the MOC for contract work.

As for mileage plus, what is the drawback in selling that unit? If it is more cost effective then should the company not seek to do so? We do not lose the MP pax just the maintenance of the service if I read the article correctly that discussed this a few weeks ago.

Blowing air to blow air is not a very intelligent way to produce a post. Why not put some work into the facts, make a good argument and then type. Your method is truly lacking information or supporting statements.

On the airplane order issue I am curious about something. What equipment is any carrier buying? The 787 is not flying and if you follow what happened with our 777's you would wait out the first round of a new airplane. Were you even around to remember the problems we had with the -400 when they were new????? The nose gear that would not extend in LAX was a great way to display a new airplane.

In fact if you follow the markets I think UAL is in a very good position compared to some other carriers with the bear market appearing to be warming up for a full fledged downturn.

Of course I hate to throw facts at your emotion and hope to dissuade your mindset.

EDC757

Slow, you make me wonder why you like to beat-up on United. It is interesting that you keep your profile a secret. Humm

captjns

However, not when the lining of the pockets of the Board of Directors are at stake... in their twisted world, they come first.

7576United

Funny how quickly a company can go from being on the verge of liquidation, to having too much money lying around.

UAL, from a financial standpoint, is doing well. The employees know this, and want to recover some lost wages. To keep the inmates from rioting, Tilton/Brace float the idea of being broken apart. Inmates retreat. Business as usual.

Thanks for helping out Tilton, monkey boy, we all appreciate it.