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Airline Stocks' Q4 Earnings Due on Jan 25: LUV, AAL & ALK

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The Q4 earnings season is picking up pace with multiple companies reporting earnings each passing day. According to the latest Earnings Preview, 81 S&P 500 companies will release quarterly numbers during the course of this week .

Per the report, the entire S&P 500 fraternity is projected to end the Q4 reporting cycle with bottom-line growth of 10.3% on a year-over-year basis. The same set of companies is projected to witness top-line growth to the tune of 7.1%. These projections compare favorably with the readings in Q3, when revenues increased 5.9% and earnings improved 6.7%.

In fact, of the 16 Zacks sectors, 14 are anticipated to end the reporting cycle with earnings growth, one being the widely-diversified Zacks Transportation sector. The bottom line for this sector is projected to increase 1.6% compared with the year-over-year decline of 13.9% in preceding quarter.

Will Airlines Fly High in Q4?

Given that the airline stocks form an integral part of the transportation sector, it is needless to say that companies in this space share the buoyant picture of the broader sector. Notably, the better-than-expected results reported by the likes of Delta Air Lines (DAL - Free Report) and United Continental Holdings (UAL - Free Report) in Q4 highlight the air of optimism surrounding airlines.

The improved unit revenue scenario bodes well for airline stocks as they seem to be back in favor post hurricanes. Evidently, the likes of American Airlines Group (AAL - Free Report) and JetBlue Airways (JBLU - Free Report) have issued improved Q4 projections with respect to the metric, which measures sales relative to capacity for a carrier.

The favorable scenario supports the bullish Zacks Industry Rank of 87 (out of 250 plus groups) carried by the Zacks Airline industry. This rank places the companies within the top 34% of the Zacks industries.

Buoyed by the bullish sentiment surrounding the airline stocks, interested investors keenly await Q4 reports from key sector participants like Southwest Airlines (LUV - Free Report) , American Airlines and Alaska Air Group (ALK - Free Report) on Jan 25.

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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

In the quarter to be reported, we expect high costs to hurt the bottom line of Dallas-based Southwest Airlines, similar to the previous quarter. Unit costs (excluding fuel and oil expenses, special items and profit-sharing expenses) are expected to be flat to up 1.5%. The Zacks Consensus Estimate for average fuel cost per gallon is pegged at $2.12, higher than $2 in the third quarter.

In fact, our proven model too does not conclusively show that Southwest Airlines is likely to beat earnings estimates in Q4. This is because the company has an Earnings ESP of 0.00% (as the Zacks Consensus Estimate of 76 cents per share is in line with the Most Accurate estimate) and a Zacks Rank #3 (Read more: Can Southwest Airlines Pull a Surprise in Q4 Earnings?).

 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The next company, American Airlines, is headquartered in Fort Worth, TX. It operates more than 6,700 daily flights to over 330 destinations in more than 50 nations across the globe. The carrier’s Q4 results are likely to be aided by higher passenger revenues. However, higher costs are expected to limit bottom-line growth.

In fact, our proven model too does not conclusively show that American Airlines is likely to beat earnings estimates in the soon-to-be reported quarter. This is because the company has an Earnings ESP of 0.00% ( as the Zacks Consensus Estimate of 92 cents per share is in line with the Most Accurate estimate) and a Zacks Rank #3 (Read more: American Airlines Q4 Earnings: What's in the Cards?).

 

Also, the Seattle, WA-based Alaska Air Group is anticipated to be hurt by high costs in Q4 like the previous one. As a result, the company expects non-fuel unit costs to be in the range of 8.65 cents to 8.67 cents much higher than 8.45 cents in the year-ago quarter. The increased projection can be attributed to the costs associated with the pay-related deal inked with its pilots.

Increased in fuel costs are likely to pressurize the bottom line as well. Our proven model too does not conclusively show that Alaska Air Group is likely to beat earnings estimates this quarter. This is because the company has an Earnings ESP of 0.00% (as the Zacks Consensus Estimate of 83 cents per share is in line with the Most Accurate estimate) and a Zacks Rank #3 (Read more: Alaska Air Group Q4 Earnings: What's in the Offing?).

Alaska Air Group, Inc. Price and EPS Surprise

 

Alaska Air Group, Inc. Price and EPS Surprise | Alaska Air Group, Inc. Quote

 

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