United Continental will rebound in second half of 2019: Goldman Sachs

Goldman Sachs is getting bullish on United Continental Holdings (UAL), upgrading shares from Neutral to Buy. Analysts Catherine O’Brien and Joyce Koltisko see a rebound for the carrier in the second half of 2019 on the belief that several recent risk factors to their outlook have been priced in.

“Given UAL’s share price decline since we initiated in November 2018, it now has one of the highest levels of upside potential to our price target in our coverage universe,” the analysts wrote in a note to investors.

“We believe that the company’s more difficult second half 2019 unit revenue comparables, investor concerns around its loan to Avianca, and its relatively larger exposure to China have weighed on shares,” they add.

As of Thursday’s close, United shares are down 0.92%, or $0.77, for the year.

Goldman Sachs kept its $108 price target on the airline, which implies a 32% upside potential from current levels.

Adding to the optimism, the firm sees further upside risk if a new credit card agreement is reached with Chase (JPM), which is United’s co-branded credit card partner, adding that the two companies are within 12 to 36 months of signing a new contract that could have “improved economics.”

With regards to United's exposure in China, Goldman isn't too concerned. That's because China only represents about 4% of its capacity compared to the next largest U.S. rival, Delta (DAL), which has just under 3% capacity.

“We believe that investor perception around United’s exposure to China may be skewed given that as recently as a couple of years ago, United’s exposure to China was over 100 basis points higher, but the company has since suspended service on several routes,” write O’Brien and Koltisko.

Meanwhile, budget airline Spirit (SAVE) got a downgrade from Goldman given the increased volatility in the flier's revenue growth.

Spirit Airlines shares are down $7.98 for the year, or about 14%.