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Airline Stocks to Watch for Earnings on Oct 21: ALK, AAL, LUV

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·4 min read
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The rapid spread of the highly contagious Delta variant of the coronavirus across the United States dealt a huge blow to the U.S.-based airline stocks. This is because after being battered by the pandemic-borne crisis last year, the airline operators were just finding their feet owing to improved air-travel demand (particularly for leisure) but the rampant transmission of the infectious strain of COVID-19 hit it hard. It is threatening to undo the uptick in air travel.

Apart from the Delta-variant-induced woes, steep fuel costs (oil price was up 2.1% in the third quarter from second-quarter levels) as a result of northbound oil prices are limiting the airlines’ bottom-line growth. However, the focus on cargo revenues is a positive in an era of dwindling passenger revenues.

Upcoming Airline Releases

Given the above-mentioned factors, investors interested in the airline space will await the third-quarter 2021 earnings releases of Alaska Air Group ALK, American Airlines AAL and Southwest Airlines LUV. These three carriers are scheduled to report September-quarter results on Oct 21.

Let’s see how things have been shaping up for these prominent airline companies ahead of their respective earnings releases.

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

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

Alaska Air’s third-quarter 2021 performance is likely to have been affected by Delta-variant-led low passenger revenues due to diminished air-travel demand. However, despite this slowdown, passenger revenues are likely to have improved year over year. The Zacks Consensus Estimate for third-quarter 2021 passenger revenues indicates more than a 100% increase from the number reported in the year-ago quarter. Higher fuel costs with oil prices moving north are expected to have dented the bottom line in the to-be-reported quarter.

Our proven Zacks model does not predict an earnings beat for Alaska Air this season as the carrier has an Earnings ESP of +1.24% and a Zacks Rank #4 (Sell) at present. In fact, our model had not predicted a positive surprise for the company when we issued its third-quarter earnings preview article. Back then, the stock had an Earnings ESP of +3.17% and the same Zacks Rank.

Alaska Air Group, Inc. Price and EPS Surprise

Alaska Air Group, Inc. Price and EPS Surprise
Alaska Air Group, Inc. Price and EPS Surprise

Alaska Air Group, Inc. price-eps-surprise | Alaska Air Group, Inc. Quote

In the face of the Delta-variant-triggered sluggishness in passenger revenues, American Airlines’ focus on its cargo unit is likely to have bolstered cargo revenues in the September quarter. This, in turn, is expected to have boosted the overall top line. The Zacks Consensus Estimate for third-quarter cargo revenues implies a 59% rise from the third-quarter 2020 reported figure.

However, the bottom line is expected to have reflected the effect of the rising fuel costs due to a spike in oil prices. The company estimates the same to be $2.08 for the third quarter compared with $1.91 reported in the second quarter of 2021.

Moreover, our proven model does not conclusively predict an earnings beat for American Airlines this reporting cycle as it currently has a Zacks Rank of 4 and an Earnings ESP of +1.95%. Earlier too, our Zacks methodology had not predicted an earnings beat for the company when we issued its third-quarter earnings preview article. Back then, the stock had an Earnings ESP of -5.23% and the same Zacks Rank.

American Airlines Group Inc. Price and EPS Surprise

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

We expect Dallas-based Southwest Airlines’ third-quarter performance to have been hurt by the decline in air-travel demand caused by the Delta variant. Besides, Hurricane Ida disrupted the airline’s operations. The carrier is expected to have canceled nearly 2,700 flights during the September quarter, which are likely to have affected its top line. Flared-up fuel costs with oil prices moving upward might have also weighed on the bottom line in the to-be-reported quarter.

Our proven Zacks model does not predict an earnings beat for Southwest Airlines this time around as the company currently has an Earnings ESP of +0.80% and is Zacks #4 Ranked. In fact, our model had also not predicted a positive surprise for the company when we issued its third-quarter earnings preview article. Back then, the stock had an Earnings ESP of +13.36% and the same Zacks Rank.

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. Price and EPS Surprise
Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote


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