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Can Passenger Revenues Aid Southwest (LUV) Q3 Earnings?
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Southwest Airlines Co. (LUV - Free Report) is slated to release third-quarter 2018 results on Oct 25, before the market opens.
In the second quarter of 2018, the company delivered a positive earnings surprise of 0.8%. Both the top and the bottom line also improved year over year. However, revenues in the period fell below the Zacks Consensus Estimate.
Things seem to be looking up for the company this earnings season as well with the Zacks Consensus Estimate having inched up almost 1% in the last 30 days.
Why a Likely Positive Surprise?
Our proven model shows that Southwest is likely to beat on earnings this reporting cycle as well, courtesy of a perfect combination of the following two key ingredients:
Earnings ESP: Southwest has an Earnings ESP of +1.61%, representing the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. While the Most Accurate Estimate stands at $1.08 per share, the Zacks Consensus Estimate is pegged lower at $1.06. 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: Southwest carries a Zacks Rank #3 (Hold). Note that stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 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.
Driven by impressive bookings and close-in yield trends, passenger revenues in the third quarter are expected to be strong. The Zacks Consensus Estimate for third-quarter passenger revenues stands at $5,157 million, above $4,745 million a year ago. Higher passenger revenues are expected to boost the top line in turn.
The company expects a 0.5-1 point year-over-year benefit on its unit revenues (RASM) in the third quarter on account of flight cancellations due to weather-related disruptions in July and August. RASM is anticipated to inch up 1-1.5% year over year in the soon-to-be-reported quarter.
Further, the company continues to expect a pre-tax benefit of $70-$80 million in the quarter to be reported following implementation of a variable fee structure for its EarlyBird CheckIn product on Aug 29.
However, similar to previous few quarters, escalating fuel prices are likely to affect bottom-line growth in the third quarter. The company envisions fuel price per gallon (inclusive of fuel tax: economic) to be $2.25 in the quarter to be reported. The Zacks Consensus Estimate for third-quarter average fuel price is pegged at $2.26, more than $2 reported a year ago.
Additionally, high labor costs are anticipated to hamper the bottom line in the third quarter. The carrier expects unit costs (CASM) — excluding fuel and oil expenses plus profit-sharing expenses (including 0.5-1 point year-over-year adversity from the cancellations) — to increase between 3% and 3.5% in the said period.
Other Stocks to Consider
Investors interested in the broader Transportation sector may also consider Union Pacific Corporation (UNP - Free Report) , Old Dominion Freight Line, Inc. (ODFL - 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.
Old Dominion Freight Line has an Earnings ESP of +0.69% and a Zacks Rank of 2. The company will release third-quarter 2018 results on Oct 25.
C.H. Robinson has an Earnings ESP of +0.56% and is a Zacks #2 Ranked player. The company will announce third-quarter financial figures on Oct 30.
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Can Passenger Revenues Aid Southwest (LUV) Q3 Earnings?
Southwest Airlines Co. (LUV - Free Report) is slated to release third-quarter 2018 results on Oct 25, before the market opens.
In the second quarter of 2018, the company delivered a positive earnings surprise of 0.8%. Both the top and the bottom line also improved year over year. However, revenues in the period fell below the Zacks Consensus Estimate.
Things seem to be looking up for the company this earnings season as well with the Zacks Consensus Estimate having inched up almost 1% in the last 30 days.
Why a Likely Positive Surprise?
Our proven model shows that Southwest is likely to beat on earnings this reporting cycle as well, courtesy of a perfect combination of the following two key ingredients:
Earnings ESP: Southwest has an Earnings ESP of +1.61%, representing the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. While the Most Accurate Estimate stands at $1.08 per share, the Zacks Consensus Estimate is pegged lower at $1.06. 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: Southwest carries a Zacks Rank #3 (Hold). Note that stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 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.
Southwest Airlines Co. Price and EPS Surprise
Southwest Airlines Co. Price and EPS Surprise | Southwest Airlines Co. Quote
Factors Likely at Play
Driven by impressive bookings and close-in yield trends, passenger revenues in the third quarter are expected to be strong. The Zacks Consensus Estimate for third-quarter passenger revenues stands at $5,157 million, above $4,745 million a year ago. Higher passenger revenues are expected to boost the top line in turn.
The company expects a 0.5-1 point year-over-year benefit on its unit revenues (RASM) in the third quarter on account of flight cancellations due to weather-related disruptions in July and August. RASM is anticipated to inch up 1-1.5% year over year in the soon-to-be-reported quarter.
Further, the company continues to expect a pre-tax benefit of $70-$80 million in the quarter to be reported following implementation of a variable fee structure for its EarlyBird CheckIn product on Aug 29.
However, similar to previous few quarters, escalating fuel prices are likely to affect bottom-line growth in the third quarter. The company envisions fuel price per gallon (inclusive of fuel tax: economic) to be $2.25 in the quarter to be reported. The Zacks Consensus Estimate for third-quarter average fuel price is pegged at $2.26, more than $2 reported a year ago.
Additionally, high labor costs are anticipated to hamper the bottom line in the third quarter. The carrier expects unit costs (CASM) — excluding fuel and oil expenses plus profit-sharing expenses (including 0.5-1 point year-over-year adversity from the cancellations) — to increase between 3% and 3.5% in the said period.
Other Stocks to Consider
Investors interested in the broader Transportation sector may also consider Union Pacific Corporation (UNP - Free Report) , Old Dominion Freight Line, Inc. (ODFL - 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.
Union Pacific has an Earnings ESP of +0.57% and a Zacks Rank #2. The company will report third-quarter earnings on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Dominion Freight Line has an Earnings ESP of +0.69% and a Zacks Rank of 2. The company will release third-quarter 2018 results on Oct 25.
C.H. Robinson has an Earnings ESP of +0.56% and is a Zacks #2 Ranked player. The company will announce third-quarter financial figures 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>>