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How to trade Southwest Airlines (LUV) Ahead of Earnings

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On Thursday, July 21st, Southwest Airlines Co. (LUV - Free Report) will release its second quarter earnings results. The company is currently a Zacks Rank #5 (Strong Sell) and shares are up less than 1% year-to-date.

Join David Bartosiak on Wednesday at 2pm EST on YouTube to see his thoughts on Southwest Airlines’ past earnings, look at what is currently going on with the company, and gives us his prediction on their upcoming earnings announcement.

Furthermore, Dave will look into some potential options trades for investors looking to make a play on Southwest Airlines ahead of earnings.

Southwest Airlines Co. in Focus

Southwest Airlines operates passenger airlines that provide scheduled air transportation services in the United States and near-international markets. The company has the lowest operating cost structure in the domestic airlines industry and consistently offers the lowest and simplest fares.

Southwest Airlines is coming off of an earnings beat of 4.46% last quarter, beating the EPS consensus estimate of $0.84 by posting EPS of $0.88. The company has a solid recent history with earnings reports actually, as it has either met or beat on earnings estimates in each of the last 4 quarters.

SOUTHWEST AIR Price, Consensus and EPS Surprise

SOUTHWEST AIR Price, Consensus and EPS Surprise | SOUTHWEST AIR Quote

Heading into this earnings report, our Most Accurate Estimate is EPS of $1.23, which is $0.01 higher than the Zacks Consensus Estimate. This means that there is an earnings expected surprise prediction of 0.82%.

While the company faces some headwinds such as foreign currency fluctuation, Southwest Airlines has continued to see growth in its business. The company reported strong traffic numbers for June 2016 recently, which showed that revenue passenger miles (RPMs:  A measure of air traffic) improved 6.8% on a year-over-year basis to 11.5 billion. Available seat miles (ASMs: A measure of capacity) also rose 5.4% to 13.1 billion.

As mentioned though, Southwest Airlines holds the lowest Zacks Rank, which can be attributed in part to the large amount of negative analyst estimate revision activity as of late. In the last 60 days, 6 analysts lowered their Q2 earnings estimates, which dropped the estimate from $1.25 down to the current level of $1.22. Current year estimates have also been lowered, with 7 analysts dropping their estimates in the last 60 days. The current year EPS estimate has dropped from $4.30 all the way to the current estimate of $4.07.

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Dave Bartosiak is the editor of the Momentum Trader and Home Run Investor service. He has over a decade of experience in the financial services industry. He has traded forex, futures, stocks, and options. Mr. Bartosiak is a frequent guest on popular business news TV channels such as Bloomberg TV. He’s also the host of a light-hearted, Millennial-minded series of videos called “Trending Stocks.”

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