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American Airlines (AAL) to Post Q3 Earnings: A Beat in Store?

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American Airlines AAL is slated to release third-quarter 2019 results on Oct 24, before market open.

The Zacks Consensus Estimate for third-quarter earnings has been revised upward 3.8% in the past 60 days. Given this backdrop, let’s delve into the factors that might have influenced the company’s performance in the September quarter.

As was the case in the first two quarters of 2019, a healthy uptick in passenger revenues owing to strong demand for air travel is likely to have boosted the company's third-quarter performance. Passenger revenue figures are also likely to reflect the impact of robust traffic during summer. Moreover, higher yields are likely to have driven third-quarter performance.

Another factor that may aid the carrier’s third-quarter results is the fact that the impact of Hurricane Dorian on bookings was not as severe as anticipated initially. American Airlines expects total revenue per available seat mile (TRASM: a key measure of unit revenues) to have increased between 1.5% and 2.5% year over year in the third quarter, despite flight cancellations due to Hurricane Dorian.

Moreover, the reduction in fuel costs is likely to have supported the bottom line at American Airlines in the third quarter of 2019. In fact, the Zacks Consensus Estimate for third-quarter 2019 fuel price per gallon is currently pegged at $2.10, indicating an 8.7% decline from the year-earlier reported number.

Despite the tailwinds, one needs to be mindful of the challenges posed by the prolonged grounding of the Boeing 737 MAX jets in its fleet. As American Airlines has 24 such jets, its bottom line is expected to reflect the impact of escalated non-fuel costs due to the grounding in the to-be-reported results. American Airlines expects non-fuel unit costs to have increased between 4% and 6% in the third quarter.

What the Zacks Model Unveils

Our proven Zacks model predicts an earnings beat for Ameican Airlines this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: American Airlines has an Earnings ESP of +1.64% as the Zacks Consensus Estimate of $1.36 is pegged at 2 cents lower than the Most Accurate Estimate.

Zacks Rank: American Airlines carries a Zacks Rank #3, which increases the predictive power of ESP.

Highlights of Q2 Earnings & Earnings History

In the last reported quarter, American Airlines delivered earnings (excluding 33 cents from non-recurring items) of $1.82 per share that surpassed the Zacks Consensus Estimate by 5 cents. Moreover, the bottom line improved on a year-over-year basis, backed by a 4.4% decline in fuel costs.

In fact, the carrier boasts an impressive earnings surprise history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters as shown in the chart below.

American Airlines Group Inc. Price and EPS Surprise


American Airlines Group Inc. Price and EPS Surprise

American Airlines Group Inc. price-eps-surprise | American Airlines Group Inc. Quote

Stocks to Consider

Investors interested in the broader Transportation sector can check out Expeditors International of Washington EXPD, Allegiant Travel Company (ALGT - Free Report) and Southwest Airlines LUV as these stocks possess the right mix of elements to beat on earnings in their next releases.

Expeditors has an Earnings ESP of +0.74% and a Zacks Rank of 3. The company will report third-quarter 2019 results on Nov 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allegiant has an Earnings ESP of +1.39% and is Zacks #3 Ranked. The company will announce third-quarter earnings results on Oct 24.

Southwest has an Earnings ESP of +0.31% and is a #3 Ranked player. This company will release third-quarter financial numbers on Oct 24.

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