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United Continental Holdings, Inc. Stock Could Drop by Double Digits (UAL)

UAL - United Continental Holdings, Inc. Stock Could Drop by Double Digits (UAL)

Source: Shutterstock

You’ve probably already seen the video: Airport security yanked doctor David Dao off of Louisville-bound United Continental Holdings Inc (NYSE:UAL) Flight 3411 after an overbooking prevented a United standby crew from seating. After offering $800 to take a later flight, with no takers, the crew selected passengers at random to deplane. Dao refused and was violently removed, hitting his face on an armrest.

United Continental Holdings, Inc. Stock Could Drop by Double Digits (UAL)

Source: Shutterstock

The incident, caught on cell phone camera of course, has already spawned a series of internet memes and has become a full-blown PR disaster for United — and a blow to UAL stock that, while seemingly small, could trigger a much larger move lower. More on that in a moment.

The virtue signaling is real, with United cardholders shredding their cards on Twitter while mimicking management labeling the incident a “re-accommodation” of Dao.

UAL shares are tumbling in response, and CEO Oscar Munoz has yet to issue a real, heartfelt apology possibly on fears of fueling a lawsuit. The irony is thick, as Munoz was named U.S. Communicator of the Year by PRWeek magazine last month.

The incident has also struck a chord with Americans frustrated by the quality of air travel and corporate indifference in general, with #NewUnitedAirlinesMottos the top trending topic on Twitter. Users are suggesting slogans like “no enough seating, prepare for a beating.”

The incident is getting a lot of attention in China, given Dao’s nationality. China is one of United’s most important growth markets.

Watch the UAL Stock Chart

As mentioned before, United shares are only a little more than 2% lower in Tuesday’s trade, which doesn’t sound like much. However, shares are testing below their 20-day moving average and look set for a return to the March lows near $65.

If the outcry continues at full heat (keep an eye on China on this front), a drop all the way down to United’s 200-day moving average isn’t out of the question. If so, that would be a roughly 13% loss in UAL stock from here.

UAL stock chart

United’s underlying trends are solid: Cowen recently upgraded the stock on March traffic results and updated financial guidance. And the company will have a chance to show off any other operational strengths when it reports earnings April 17 after the close. (Analysts are looking for earnings of 34 cents per share on revenues of $8.3 billion.)

However, the fallout from the negative publicity is just beginning. This could get a lot uglier for UAL before it gets better.

Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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