U.S. Markets close in 4 hrs 24 mins

Airline Stocks Q3 Earnings Slated on Oct 26: LUV, ALGT, VLRS

Zacks Equity Research

The Q3 earnings season is currently underway with several companies having reported their financial results so far. With more and more companies set to report their quarterly numbers in the coming days, we expect to get a clearer picture of the overall trend in this earnings cycle.

It is a well-documented fact that the airline sector is currently undergoing tough times, thanks to multiple headwinds like lower air fares, Brexit-induced uncertainty, technological glitches, unit revenue woes and declining demand for travel due to the surge in terror attacks. The sorry state of affairs is reflected by the bearish Zacks Industry Rank of 239 (among more than 260 groups) carried by the Transportation-Airline segment.

In fact, the quarterly releases from this sector so far have been affected by the aforesaid risks. We note that both Delta Air Lines DAL and United Continental Holdings UAL have reported lackluster earnings and revenues in Q3 on a year-over-year basis. Declining air fares was one of the factors hurting results as were increasing labor costs stemming from new labor deals inked by many carriers.

Although quite a few carriers managed to beat estimates this earnings season, there has neither been a notable stock price movement nor a revision in Zacks Rank for most of these companies. This clearly indicates that the prevalent headwinds have more than offset the bottom-line outperformance of these firms. For example, Delta Air Lines carries a bearish Zacks Rank # 4 (Sell) in spite of posting better-than-expected earnings this quarter.

Our latest Earnings Preview report indicates that the S&P 500 companies in the transportation sector, of which airlines are a part, are expected to end Q3 with earnings declining 14.3%. This is worse than the Q2 performance when the S&P 500 companies in the transportation sector (one of the 16 Zacks sectors) saw the bottom-line decreasing 12.4%.

Investors interested in the airlines space are keenly awaiting reports from key sector participants on Oct 26. Let’s find out what might in store for them.

Dallas-based low-cost carrier Southwest Airlines LUV is a passenger airline that provides scheduled air transportation in the United States. The scenario appears to be gloomy for the carrier as far as Q3 results are concerned. According to our quantitative model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – to increase its odds of an earnings surprise.

 However, Southwest has an Earnings ESP of -1.14% and a Zacks Rank #5 (Strong Sell). As it is, we caution against Sell-rated stocks (Zacks Rank 4 and 5) going into the earnings announcement (Read more: Will Southwest Airlines Disappoint in Q3 Earnings? ).

SOUTHWEST AIR Price and EPS Surprise

 

SOUTHWEST AIR Price and EPS Surprise | SOUTHWEST AIR Quote

Las Vegas-based Allegiant Travel Company ALGT is the parent company of Allegiant Air. The low-cost Allegiant Air offers air travel both on a stand-alone basis and bundled with hotel rooms, rental cars and other travel-related services. The company has an Earnings ESP of +1.53% and carries a Zacks Rank #3. The favorable combination makes an earnings beat likely (Read more: Allegiant Travel: A Beat in the Cards in Q3 Earnings?).

You can see the complete list of today’s Zacks #1 Rank stocks here.

ALLEGIANT TRAVL Price and EPS Surprise

 

ALLEGIANT TRAVL Price and EPS Surprise | ALLEGIANT TRAVL Quote

Controladora Vuela Compañía de Aviación, S.A.B. de C.V. VLRS is an airline that focuses on passenger transport. Nonetheless, the Mexican carrier engages in non-passenger services, transporting cargo shipments, animals, and fresh food among others. The carrier has an Earnings ESP of +13.51% as the Most Accurate Estimate exceeds the Zacks Consensus Estimate of 37 cents by 5 cents. Moreover, the carrier has a Zacks Rank #3. The favorable combination makes an earnings beat likely in Q3.

CONTROLADORA VL Price and EPS Surprise

 

CONTROLADORA VL Price and EPS Surprise | CONTROLADORA VL Quote

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Confidential from Zacks

This week, Zacks researchers have named 7 other stocks that look to break out even sooner than today's Bull of the Day. You can see these time-sensitive tickers free, and access additional trades that are not available to the public. Simply click here>>.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SOUTHWEST AIR (LUV): Free Stock Analysis Report
 
DELTA AIR LINES (DAL): Free Stock Analysis Report
 
ALLEGIANT TRAVL (ALGT): Free Stock Analysis Report
 
CONTROLADORA VL (VLRS): Free Stock Analysis Report
 
UNITED CONT HLD (UAL): Free Stock Analysis Report
 
To read this article on Zacks.com click here.