Back to top

Image: Bigstock

Airline Stocks to Report Earnings on Jul 22: AAL, VLRS

Read MoreHide Full Article

Delta Air Lines (DAL - Free Report) kicked off the second-quarter earnings season for the airline sector last week with an earnings beat. United Continental Holdings (UAL - Free Report) also posted a second-quarter earnings beat on Jul 19 (after market close). The Chicago-based carrier went a step ahead by beating the Zacks Consensus Estimate on the revenue front as well.

With more reports scheduled for release, we will soon gain an insight into the sector’s overall second-quarter performance. Despite the bottom-line outperformance of two key players in the airline space, there is no denying the fact that carriers are struggling to deal with multiple headwinds.

The increase in terror attacks is a looming threat to airlines. This is because such attacks give rise to the possibility of air travel demand slackening due to security fears. Furthermore, the Brexit vote late last month also dealt a heavy blow to carriers which have a significant U.K. exposure. Subsequently, carriers like Delta have announced their intentions to trim capacity to UK. Apart from other challenges, unit revenue issues are also a dampener. That unit revenue problems are not a thing of the past can be made out from United Continental’s bearish guidance with respect to passenger revenue per available seat mile (PRASM: a key measure of unit revenue) for the third quarter.

Notwithstanding the impressive start, we expect the above headwinds to hurt airlines’ second-quarter earnings. This can be made out from the fact that second-quarter earnings for the transportation sector (of which airlines are a part) are projected to decline13.9%. The top line is expected to shrink 1.4%.

Investors interested in the transportation sector eagerly await the earnings releases by major airline players on Jul 22. Let’s take a look at the possibilities of a beat or miss these players have.

American Airlines Group Inc. (AAL - Free Report) is slated to release second-quarter 2016 results before market opens. The company posted an earnings surprise of 5.93% in the first quarter of 2016. Moreover, the company recorded an earnings surprise in each of the last four quarters, with an average surprise of 2.74%. It is to be seen how the company performs this time around.

According to our quantitative model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase its odds of an earnings surprise. The Fort Worth, TX-based carrier has an Earnings ESP of 0.00% a Zacks Rank #5 (Strong Sell). The combination makes an earnings beat unlikely. As it is, we caution against Sell-rated stocks going into the earnings announcement (read more: American Airlines Q2 Earnings Likely to Disappoint).

AMER AIRLINES Price and EPS Surprise

AMER AIRLINES Price and EPS Surprise | AMER AIRLINES Quote

Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS - Free Report) is an airliner that focuses on passenger transport. The Mexican carrier also engages in non-passenger services, transporting cargo shipments, animals, fresh food, among others. The carrier has a positive Earnings ESP of 28.57% with the Most Accurate Estimate exceeding the Zacks Consensus Estimate of 28 cents by 8 cents. However, the carrier’s Zacks Rank # 4 (Sell) acts as a spoiler making an earnings beat unlikely for the second quarter. Results will be out before market opens tomorrow.

CONTROLADORA VL Price and EPS Surprise

CONTROLADORA VL Price and EPS Surprise | CONTROLADORA VL Quote

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Published in