Continental Airlines (CAL): Oil Spike Not Over, Stock To $9. Or $45. Whatever

How often does an analyst have a Neutral rating on a stock when his/her price target is 50% below the stock price? When the analyst covers airlines.

Credit Suisse has reiterated its $9 target price on Continental Airlines (CAL), whose stock currently sits above $18. The analyst also thinks the stock could suddenly jump to $45. The bank’s thesis is essentially that the oil crash is temporary and therefore to adjust the rating or target would be speculative:

Given macro volatility, our rating is temporarily misaligned with the downside to our PT [price target], tho the recent run in shares is consistent w/ our 7/30/08 trade alert where we pointed out that significant short term (i.e. 1-2 month) upside was likely given falling crude prices. We pointed out that under the scenario where crude prices fell to $100 thru 2009, we pointed out CAL could fetch $45/share (vs $14.21 at the time of our alert & $17.84 today). Our $9 PT is based on CAL’s EV trading at 7.5x our 09E EBITDAR; we model crude at $130 in 2009 and believe it’s too early to revise ests. given WTI volatility, tho will revisit soon.

…our 7/1/08 sector thesis hasn’t changed; w/ WTI [West Texas Intermediate] at $125, we like airline stocks given capacity cuts that lead us to forecast significant 2009 profitability. With WTI at $150- plus, we’ve disliked the stocks despite upcoming capacity cuts because more [cuts] needed. Crude prices today do make valuations appealing but we’re concerned about expert commentary that suggests current crude prices at current levels are temporary.

Bottom line? Could go to $45, could go to $9. Let’s hear it for clarity.

Credit Suisse reiterates NEUTRAL on Continental Airlines (CAL), target $9.

See Also:
United (UAUA), American (AMR) Delta (DAL) Lose More Baggage Than Anyone Else
Airline Industry: Don’t Believe The Bulls–We’re Still Screwed
US Airways (LCC) CEO: If Oil Stays at $120, Only The Rich Will Fly


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