Back to top

Image: Bigstock

United Continental (UAL) Q3 Earnings: Is a Beat in Store?

Read MoreHide Full Article

United Continental Holdings, Inc. (UAL - Free Report) is scheduled to report third-quarter 2018 results on Oct 16, before the market opens.

Last reported quarter, the company delivered a positive earnings surprise of 5.2% with better-than-expected earnings and revenues. Both the metrics also improved on a year-over-year basis. This apart, the company has an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, with an average beat of 3.4%.

With the Zacks Consensus Estimate for third-quarter earnings having risen 5.5% upward over the past 60 days, things seem to be looking up for the company this quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that United Continental is likely to beat on earnings in the third quarter, courtesy of a perfect combination of the following two key ingredients:

Earnings ESP: United Continental has an Earnings ESP of +0.98%, representing the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. While the Most Accurate Estimate stands at $3.09 per share, the Zacks Consensus Estimate is pegged lower at $3.06. A positive Earnings ESP is indicative of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: United Continental carries a Zacks Rank #2 (Buy). Note that stocks with a favourable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have significantly higher chances of beating estimates.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Likely at Play

Robust passenger revenues on account of escalating travel demand are anticipated to boost the company’s top line in the third quarter. The company estimates consolidated passenger unit revenues (PRASM) at the high end of the guided range of 4-6% increase. The Zacks Consensus Estimate for third-quarter PRASM stands at 13.63 cents, higher than 12.17 cents reported in the year-ago quarter. Also, it expects pre-tax margin, excluding special charges and the mark-to-market impact of equity investments, in the high end of 8-10%.

Additionally, lower effective tax rate in the quarter from Tax Cuts and Jobs Act is likely to drive bottom-line growth. The company forecasts third-quarter effective income tax rate in the 20-21% band, much lower than 35% reported a year ago.

However, rising fuel prices might hamper bottom-line growth. This is because fuel expenses comprise a major chunk of airline expenditures. Consolidated average aircraft fuel price per gallon is anticipated on the higher side of $2.27-$2.32 range. The Zacks Consensus Estimate for third-quarter fuel price per gallon is pegged at $2.30, much higher than $1.70 in the year ago quarter. The projection is also above $2.26 reported in the previous quarter.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider Canadian Pacific Railway Limited (CP - Free Report) , Alaska Air Group, Inc. (ALK - Free Report) and C.H. Robinson Worldwide, Inc. (CHRW - Free Report) as these stocks too possess the right combination of elements to come up with an earnings beat in their next releases.

Canadian Pacific has an Earnings ESP of +6.69% and a Zacks Rank #2. The company will report third-quarter earnings on Oct 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alaska Air Group has an Earnings ESP of +1.00% and a Zacks Rank #3.  The company is scheduled to release third-quarter earnings numbers on Oct 25.

C.H. Robinson has an Earnings ESP of +0.10% and a Zacks Rank of 2. The company will announce third-quarter financial results on Oct 30.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>