Critical Review: Avianca (AVH) and United Continental (NYSE:UAL)

Avianca (NYSE: AVH) and United Continental (NYSE:UAL) are both industrials companies, but which is the superior business? We will contrast the two companies based on the strength of their profitability, institutional ownership, dividends, valuation, analyst recommendations, earnings and risk.

Insider and Institutional Ownership

4.2% of Avianca shares are held by institutional investors. Comparatively, 95.6% of United Continental shares are held by institutional investors. 0.3% of United Continental shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Avianca and United Continental’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Avianca 2.12% 11.94% 1.61%
United Continental 5.22% 25.26% 5.30%

Earnings and Valuation

This table compares Avianca and United Continental’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Avianca $4.14 billion 0.16 $44.18 million $0.45 17.82
United Continental $36.56 billion 0.62 $2.26 billion $6.91 11.06

United Continental has higher revenue and earnings than Avianca. United Continental is trading at a lower price-to-earnings ratio than Avianca, indicating that it is currently the more affordable of the two stocks.

Dividends

Avianca pays an annual dividend of $0.09 per share and has a dividend yield of 1.1%. United Continental does not pay a dividend. Avianca pays out 20.0% of its earnings in the form of a dividend.

Risk and Volatility

Avianca has a beta of 0.87, suggesting that its share price is 13% less volatile than the S&P 500. Comparatively, United Continental has a beta of 1.05, suggesting that its share price is 5% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings and target prices for Avianca and United Continental, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Avianca 0 1 2 0 2.67
United Continental 1 8 8 0 2.41

Avianca presently has a consensus price target of $11.00, suggesting a potential upside of 37.16%. United Continental has a consensus price target of $81.13, suggesting a potential upside of 6.12%. Given Avianca’s stronger consensus rating and higher possible upside, research analysts clearly believe Avianca is more favorable than United Continental.

Summary

United Continental beats Avianca on 12 of the 16 factors compared between the two stocks.

Avianca Company Profile

Avianca Holdings SA is a company engaged, through its subsidiaries, in the provision of air transportation services for passengers and commercial purposes. The Company was originally established as a strategic alliance between Aerovias del Continente Americano SA (AVIANCA) and Grupo TACA Holdings Limited (GTH), and it mainly operates in North, Central and South America, the Caribbean and Europe. In addition, through codeshare agreements, the Company is active in the operation of other international passenger air routes. As of December 31, 2011, the Company owned such subsidiaries as Latin Airways Corporation and LifeMiles Corporation, among others. On December 28, 2012, the merger of subsidiaries Latin Airways Corporation, as absorbing company, with Synergy Ocean Air Colombia SAS and Soac 2 SAS was formalized. On June 18, 2013, the Company received the first out of 15 ATR 72-600, a turbo-propelled aircraft from ATR, a company engaged in regional aircraft.

United Continental Company Profile

United Continental Holdings, Inc. (UAL) is a holding company and its principal subsidiary is United Air Lines, Inc. (United). The Company transports people and cargo through its mainline operations. It has global air rights in North America, Asia-Pacific, Europe, Middle East, Africa and Latin America. The Company, through United and its regional carriers, operates flights from its hubs at Newark Liberty International Airport (Newark Liberty), Chicago O’Hare International Airport (Chicago O’Hare), Denver International Airport (Denver), George Bush Intercontinental Airport (Houston Bush), Los Angeles International Airport (LAX), A.B. Won Pat International Airport (Guam), San Francisco International Airport (SFO) and Washington Dulles International Airport (Washington Dulles). It has contractual relationships with regional carriers to provide regional jet and turboprop service branded as United Express. These regional operations are an extension of the Company’s mainline network.

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