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Can Southwest Airlines (LUV) Pull a Surprise in Q4 Earnings?
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Southwest Airlines Company (LUV - Free Report) is slated to release fourth-quarter 2017 results on Jan 25 before the market opens.
Last quarter, the company delivered a positive earnings surprise of 1.2%. Moreover, the company has an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 2.5%.
However, things are not looking up for the carrier in the fourth quarter of 2017 due to multiple headwinds.
Let’s delve deep into the factors likely to influence the stock’s quarterly performance.
Factors at Play
High costs are likely to hurt the carrier’s bottom line in the fourth quarter like the previous one. Unit costs (excluding fuel and oil expenses, special items and profit-sharing expenses) in the period to be reported are expected to be flat up to 1.5%. The Zacks Consensus Estimate for average fuel cost per gallon is pegged at $2.12, higher than the reported base of $2 in the last quarter.
The winter storm Grayson has of late disrupted the airline operations prompting it to cancel multiple flights. This is also likely to have a bearing on its fourth-quarter results.
Additionally, a computer glitch in November 2017 hampered the company’s operations. Since expenditure on technological infrastructure is a major cash outflow for the airlines, this may also hurt the carrier’s profitability in the quarter.
However, in December 2017, the carrier unveiled an improved view pertaining to the operating revenues per available seat miles (RASM: a key measure of unit revenues) for the fourth quarter of 2017. The company now anticipates fourth-quarter 2017 operating revenues per ASM (RASM) to increase 1-2%, higher than the previous guidance of slight growth up to 1.5%. Notably, the Zacks Consensus Estimate for fourth-quarter passenger revenues per available seat mile (PRASM) stands at 12.55 cents, above the reported base of 12.15 cents in the preceding quarter.
Earnings Whispers
Per our proven model, a company needs the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. However, that is not the case here as highlighted below.
Zacks ESP: Southwest Airlines has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 76 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Southwest Airlines carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.
We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Investors interested in the broader Transportation sector may consider Allegiant Travel Company (ALGT - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Atlas Air Worldwide Holdings stocks for possessing the right combination of elements to beat estimates in their next releases this time around.
Allegiant has an Earnings ESP of +1.09% and is a Zacks #3 Ranked player. The company will release fourth-quarter earnings numbers on Jan 31.
Atlas Air Worldwide has an Earnings ESP of +2.16% and is a #3 Ranked player. The company is expected to report fourth-quarter earnings on Feb 22.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Can Southwest Airlines (LUV) Pull a Surprise in Q4 Earnings?
Southwest Airlines Company (LUV - Free Report) is slated to release fourth-quarter 2017 results on Jan 25 before the market opens.
Last quarter, the company delivered a positive earnings surprise of 1.2%. Moreover, the company has an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 2.5%.
However, things are not looking up for the carrier in the fourth quarter of 2017 due to multiple headwinds.
Let’s delve deep into the factors likely to influence the stock’s quarterly performance.
Factors at Play
High costs are likely to hurt the carrier’s bottom line in the fourth quarter like the previous one. Unit costs (excluding fuel and oil expenses, special items and profit-sharing expenses) in the period to be reported are expected to be flat up to 1.5%. The Zacks Consensus Estimate for average fuel cost per gallon is pegged at $2.12, higher than the reported base of $2 in the last quarter.
The winter storm Grayson has of late disrupted the airline operations prompting it to cancel multiple flights. This is also likely to have a bearing on its fourth-quarter results.
Additionally, a computer glitch in November 2017 hampered the company’s operations. Since expenditure on technological infrastructure is a major cash outflow for the airlines, this may also hurt the carrier’s profitability in the quarter.
However, in December 2017, the carrier unveiled an improved view pertaining to the operating revenues per available seat miles (RASM: a key measure of unit revenues) for the fourth quarter of 2017. The company now anticipates fourth-quarter 2017 operating revenues per ASM (RASM) to increase 1-2%, higher than the previous guidance of slight growth up to 1.5%. Notably, the Zacks Consensus Estimate for fourth-quarter passenger revenues per available seat mile (PRASM) stands at 12.55 cents, above the reported base of 12.15 cents in the preceding quarter.
Earnings Whispers
Per our proven model, a company needs the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. However, that is not the case here as highlighted below.
Zacks ESP: Southwest Airlines has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 76 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Southwest Airlines carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.
We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Southwest Airlines Company Price and EPS Surprise
Southwest Airlines Company Price and EPS Surprise | Southwest Airlines Company Quote
Stock to Consider
Investors interested in the broader Transportation sector may consider Allegiant Travel Company (ALGT - Free Report) , SkyWest, Inc. (SKYW - Free Report) and Atlas Air Worldwide Holdings stocks for possessing the right combination of elements to beat estimates in their next releases this time around.
Allegiant has an Earnings ESP of +1.09% and is a Zacks #3 Ranked player. The company will release fourth-quarter earnings numbers on Jan 31.
SkyWest has an Earnings ESP of +7.80% and a Zacks Rank #1 (Strong Buy). The company is scheduled to announce fourth-quarter results on Feb 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Atlas Air Worldwide has an Earnings ESP of +2.16% and is a #3 Ranked player. The company is expected to report fourth-quarter earnings on Feb 22.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>