Will Southwest Airlines (LUV) Surprise Earnings in Q4? - Analyst Blog
Southwest Airlines Co. (LUV) is set to release its fourth-quarter 2014 results before the opening bell on Jan 22.
In the last quarter, the company delivered a negative 3.77% earnings surprise. Meanwhile, in all four quarters, last year, the company delivered positive earnings surprises, with an average beat of 12.22%. Let’s see how things are shaping up for this announcement.
Factors to be Considered this Quarter
Declining fuel prices continue to drive profits at the airlines sector. Moreover, several strategies like fleet restructuring, introduction of international services and capacity management are poised to drive Southwest Airlines’ top as well as bottom line. Meanwhile, integration of AirTran will boost Southwest Airlines’ operational and financial performance.
However, the carrier projects consolidated passenger revenue per available seat mile or PRASM (a measure of unit revenue) at approximately flat to down 2% for the final quarter of 2014. The weak forecast, the below par traffic numbers recorded in Dec 2014 coupled with a charge of nearly $1.6 million related to delayed flights may dent profits in the upcoming quarter.
Earnings Whispers
Our proven model does not conclusively show that Southwest Airlines is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or at least 3 for this to happen. That is not the case here, as you will see below:
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at -3.70%, as the Most Accurate Estimate is pegged at 52 cents while the Zacks Consensus Estimate is higher at 54 cents.
Zacks Rank: Southwest Airlines’ Zacks Rank #1 (Strong Buy) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.
Please note that the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks to Consider
Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.
Delta Air Lines Inc. (DAL) with an earnings ESP of +2.67% and a Zacks Rank #1.
Allegiant Travel Company (ALGT) with an earnings ESP of +24.09% and a Zacks Rank #1.
Alaska Air Group, Inc. (ALK) with an earnings ESP of +3.41% and a Zacks Rank #2 (Buy).
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SOUTHWEST AIR (LUV): Free Stock Analysis Report
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