United stock is dragging down its airline peers
United Continental Holdings Inc (NYSE: UAL) yesterday reported stronger-than-expected fourth-quarter earnings, but the stock is still trading 8.4% lower today at $71.44. The move is likely the result of the company's announcement that it's raising capacity to gain an advantage against lower-cost competitors. Some investors may be concerned this decision will eat into United's profit margins, however, and that it'll be dragged down by a pricing war with discount airlines.
The resulting analyst attention has been mixed. While Deutsche Bank cut its price target to $81 from $86, Morgan Stanley lifted its price target to $71 from $68. The stock has seen some bullish analyst attention in 2018, but the majority of those in coverage remain bearish. By the numbers, UAL sports just six "strong buy" ratings, versus nine "hold" or "strong sell" recommendations.
Today's pullback in the security may not be surprising for two reasons. For one, United shares had been running hot, surging almost 32% in the past three months, and as of last night's close, the 14-day Relative Strength Index (RSI) stood at 78 -- deep in overbought territory. This typically suggests short-term weakness is on the horizon.
Plus, UAL has performed terribly immediately after earnings in recent quarters. Specifically, the stock has moved lower in the session after earnings reports in the past three quarters, including a 12.1% drop in October.