United Continental Finally Makes Its Way To The S&P 500

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United Airlines Holdings

United Continental (NYSE:UAL), the second largest airline by traffic, will finally become part of the S&P 500 Index after the market closes on Wednesday, September 2, 2015. The Chicago-based airline will replace Hospira (NYSE:HSP), which will be acquired by Pfizer (NYSE:PFE), next week. The legacy carrier will be included in the S&P 500 GICS Airlines Sub-Industry Index and will become the fourth US airline to feature in the benchmark index after Southwest, Delta, and the most recently added, American. Though the airline took almost a decade to make it to the coveted index after exiting bankruptcy protection, we expect the news to work in its favor, particularly in the current uncertain economic environment.

S&P 500

Source: PR Newswire

Here’s why we think so:

  • Despite being the second largest airline by traffic, United was not included in the S&P 500 index even after 10 years of exiting the bankruptcy protection process.  On the contrary, Delta rejoined the index within six years of exiting its bankruptcy, while American Airlines took less than 15 months to re-join the index after its merger with US Airways in December 2013. While the airline took longer than its peers to join the benchmark, we expect the news to finally enhance the airline’s perception in the market.
  • Typically, the inclusion of a stock into the S&P 500 index boosts its market price as index-tracking funds or managers tracking the benchmark tend to buy the stock. Thus, we expect United’s trading volumes to go up, escalating the airline’s stock price.
  • While an addition in the benchmark does not reflect an opinion on the investment merits of a company, the news is likely to reinforce investor confidence in United as a standalone investment.
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UAL-August

Source: Google Finance

At a time when the US airline industry is struggling through uncertainties related to a market perceived oversupply of seats and a potential slowdown in the Chinese economy, we anticipate the inclusion of United into the index to be viewed as positive news by most investors.

See Our Complete Analysis For United Continental Holdings here

 

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