Written By: Rachel Landen on February 2, 2012 No Comment

As United Continental Holdings benefits from merger-related synergies, analysts are optimistic about a positive trend in the airline's share price. (Rachel Landen/MEDILL)

As United Continental Holdings Inc. realizes benefits from its 2010 merger, and as air traffic continues to pick up, the airline that serves approximately 148 million passengers per year looks like it is ready to soar, both in the skies and on the stock exchange.

Following last weeks release of UALs fourth quarter earnings that beat analyst estimates, shares of the airline have risen 14 percent. Since the beginning of the year, the airlines shares are up about 23 percent.

An increase in revenues, lifted by higher fares, helped the company narrow its net loss in the final three months of 2011. Additionally, integration expenses incurred as a result of the merger of United Airlines and Continental Airlines dropped.

Excluding the impact of special items mostly merger-related costs net income for the quarter ended Dec. 31 was $109 million, or 30 cents per diluted share, topping the average Wall Street expectation of 12 cents per share. Including those expenses of $247 million, UAL reported a fourth quarter net loss of $138 million, or 42 cents per share, down from the $325 million net loss, or $1.01 per share, of a year ago.

As the company enters the first quarter of 2012, analysts are optimistic that both of these drivers will continue to boost profits, and subsequently, share price.

Helane Becker of Dahlman Rose & Co.  rates UAL shares a buy with a $27 price target (the stock opened trading on the NYSE at $23.27 Thursday). Becker credits a strong domestic market fueled by increased corporate bookings and merger-related operating synergies this year, especially as the company goes to one-technology platform.

Its a point consistently echoed by analysts as they look toward the next fiscal year. Michael Derchin of Capital Group LLC  also cites merger synergies in his analysis of the stock, suggesting that its a buy with a much higher target of $48 per share. Derchin further mentions PRASM (Passenger Revenue per Available Seat Mile) improvements that will offset higher jet fuel prices.

Of course, volatile energy prices, as well as costly capital and an international recession, do pose a risk to UAL and its competitors in the airline industry. Its a business that has struggled in recent years; note AMR Corporations (parent of American Airlines) bankruptcy and Wednesdays announcement that it plans to cut both jobs and pensions.

Though UALs price-to-earnings ratio of 10.58 falls below the S&P 500 average of 13.82, it is closely in line with its industry average. And as its earnings trump those of companies like AMR Corp. Delta Air Lines and US Airways Group, UALs stock may be the diamond in the rough.

While JP Morgan suggests a target price of $16 for Delta and $12.50 for US Airways, the firm has set a target price for UAL of $43.50. Analyst Jamie Baker of JP Morgan says that the market assumes dark days for airlines but his firm does not. In fact, JP Morgan will be moving away from recessionary inputs for the first time since September 2011.