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Will Hurricanes Mar American Airlines (AAL) Q3 Earnings?
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American Airlines Group (AAL - Free Report) is scheduled to report third-quarter 2017 results on Oct 26, before the market opens.
Last reported quarter, the company delivered a positive earnings surprise of 2.7%. It also has an impressive earnings history, beating the Zacks Consensus Estimate in three of the last four quarters with an average beat of 19.1%.
However, this Fort Worth, TX-based carrier is likely to face turbulence in the third quarter. Evidently, multiple headwinds including the back-to-back hurricanes (Harvey, Irma and Maria) have hurt the entire space.
The above hurricanes caused the company to call off approximately 8,000 flights in the third quarter. This negative sentiment surrounding the stock can be gauged from the fact that the stock has seen the Zacks Consensus Estimate for third-quarter earnings being revised 20.6% downward over the last 90 days.
Consequently, the stock has underperformed the Zacks Airline industry on a year-to-date basis. Shares of American Airlines have gained 11.2% compared with the industry’s rally of 14.9%.
Let’s delve deep to find out the factors likely to impact American Airlines’ third-quarter results.
Owing to multiple flight cancellations, the company expects third-quarter pre-tax earnings to be affected to the tune of approximately $75 million. The carrier expects pre-tax margin, excluding special items, in the range of 9-11%. Increased costs (fuel and labor) are expected to hit the bottom line. Cost per available seat miles, excluding special items, is estimated to increase at approximately 4.5% in the third quarter owing to salary and benefit increases to employees. Fuel price per gallon is anticipated between $1.64 and $1.69 in the quarter.
Despite the disruptions, the scenario with respect to total revenue per available seat mile (TRASM) is an improved one from the year-ago quarter, courtesy better-than-expected yields. American Airlines expects total revenue per available seat mile (TRASM) for the third quarter to grow between 0.5% and 1.5%. The Zacks Consensus Estimate for third-quarter TRASM is pegged at 14.98 cents, higher than 14.73 cents reported in the third quarter of 2016. The Zacks Consensus Estimate for third-quarter yields is pegged at 15.56 cents, higher than 15.27 cents reported in the third quarter of 2016.
Apart from American Airlines, other carriers like Southwest Airlines (LUV - Free Report) and JetBlue Airways (JBLU - Free Report) are likely to be hurt by the natural calamities.
What Does Our Model Say?
Our proven model also does not show conclusively that American Airlines will beat on earnings in third-quarter 2017. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case as highlighted below.
Zacks ESP: American Airlines has an Earnings ESP of +1.41% as the Most Accurate estimate is pegged two cents above the Zacks Consensus Estimate of $1.39 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: American Airlines’ Zacks Rank #5 (Strong Sell) acts as a spoiler. The bearish rank, combined with a positive Earnings ESP, leaves the surprise prediction inconclusive.
We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
A Transportation Gem
With American Airlines likely to disappoint, investors interested in the broader Transportation sector may consider Norfolk Southern Corporation (NSC - Free Report) as our model shows that it possesses the right combination of elements to beat on earnings in the current reporting cycle.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
Image: Bigstock
Will Hurricanes Mar American Airlines (AAL) Q3 Earnings?
American Airlines Group (AAL - Free Report) is scheduled to report third-quarter 2017 results on Oct 26, before the market opens.
Last reported quarter, the company delivered a positive earnings surprise of 2.7%. It also has an impressive earnings history, beating the Zacks Consensus Estimate in three of the last four quarters with an average beat of 19.1%.
However, this Fort Worth, TX-based carrier is likely to face turbulence in the third quarter. Evidently, multiple headwinds including the back-to-back hurricanes (Harvey, Irma and Maria) have hurt the entire space.
The above hurricanes caused the company to call off approximately 8,000 flights in the third quarter. This negative sentiment surrounding the stock can be gauged from the fact that the stock has seen the Zacks Consensus Estimate for third-quarter earnings being revised 20.6% downward over the last 90 days.
Consequently, the stock has underperformed the Zacks Airline industry on a year-to-date basis. Shares of American Airlines have gained 11.2% compared with the industry’s rally of 14.9%.
Let’s delve deep to find out the factors likely to impact American Airlines’ third-quarter results.
Owing to multiple flight cancellations, the company expects third-quarter pre-tax earnings to be affected to the tune of approximately $75 million. The carrier expects pre-tax margin, excluding special items, in the range of 9-11%. Increased costs (fuel and labor) are expected to hit the bottom line. Cost per available seat miles, excluding special items, is estimated to increase at approximately 4.5% in the third quarter owing to salary and benefit increases to employees. Fuel price per gallon is anticipated between $1.64 and $1.69 in the quarter.
Despite the disruptions, the scenario with respect to total revenue per available seat mile (TRASM) is an improved one from the year-ago quarter, courtesy better-than-expected yields. American Airlines expects total revenue per available seat mile (TRASM) for the third quarter to grow between 0.5% and 1.5%. The Zacks Consensus Estimate for third-quarter TRASM is pegged at 14.98 cents, higher than 14.73 cents reported in the third quarter of 2016. The Zacks Consensus Estimate for third-quarter yields is pegged at 15.56 cents, higher than 15.27 cents reported in the third quarter of 2016.
Apart from American Airlines, other carriers like Southwest Airlines (LUV - Free Report) and JetBlue Airways (JBLU - Free Report) are likely to be hurt by the natural calamities.
What Does Our Model Say?
Our proven model also does not show conclusively that American Airlines will beat on earnings in third-quarter 2017. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case as highlighted below.
Zacks ESP: American Airlines has an Earnings ESP of +1.41% as the Most Accurate estimate is pegged two cents above the Zacks Consensus Estimate of $1.39 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: American Airlines’ Zacks Rank #5 (Strong Sell) acts as a spoiler. The bearish rank, combined with a positive Earnings ESP, leaves the surprise prediction inconclusive.
We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
A Transportation Gem
With American Airlines likely to disappoint, investors interested in the broader Transportation sector may consider Norfolk Southern Corporation (NSC - Free Report) as our model shows that it possesses the right combination of elements to beat on earnings in the current reporting cycle.
Norfolk Southern has an Earnings ESP of +0.59% and a Zacks Rank #3. The company is slated to release third-quarter 2017 results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>