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Will Passenger Revenues Aid Alaska Air's (ALK) Q4 Earnings?

Zacks Equity Research

Alaska Air Group ALK is scheduled to release its fourth-quarter 2018 results on Jan 24, before market opens.

In the third quarter of 2018, the company delivered a positive earnings surprise of 6.1%. However, the bottom line decreased on a year-over-year basis, mainly due to high fuel costs. Revenues exceeded the Zacks Consensus Estimate and improved on a year-over-year basis owing to robust passenger revenues.

Things are looking up for the company this earnings season too. The Zacks Consensus Estimate for fourth-quarter earnings has moved 69.8% north over the past 60 days. The significant upward revision highlights the positivity surrounding the stock.

Factors Likely to Influence Q4 Results

We expect upbeat passenger revenues to boost the company’s top line in the soon-to-be-reported quarter. Robust traffic during the Thanksgiving holiday period should boost results.  Favorable pricing may also drive the top line. The Zacks Consensus Estimate for the metric is pegged at 12.62 cents.

The carrier anticipates fourth-quarter revenue per available seat mile (RASM) of 12.82-12.84 cents. The RASM guidance implies approximately 5.1% year-over-year increase. The Zacks Consensus Estimate for yield (mainline) is pegged at 13.25 cents, higher than 13.18 cents reported in the last reported quarter.

Moreover, fuel costs are expected to be less of a hindrance in the fourth quarter than in the previous quarters owing to nearly 40% decline in oil prices during the October-December period . The company expects fuel costs per gallon to be $2.35 in the soon to-be-reported quarter. The Zacks Consensus Estimate for the metric is pegged at $2.40 per gallon.  Reduced tax rates are also anticipated to boost the bottom line in the final quarter of 2018.

However, capacity-related woes are worrisome. In fact, load factor (% of seats filled with passengers) has not increased in any of the three months of the fourth quarter. Capacity overexpansion is the primary reason behind the unimpressive performance of this key metric.

Alaska Air Group, Inc. Price and EPS Surprise


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

What Does Our Model Say?

Our proven model shows that Alaska Air Group is likely to beat on earnings in the fourth quarter, courtesy of a perfect combination of the following two key ingredients:

Earnings ESP: Alaska Air Group has an Earnings ESP of +2.23%, representing the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. While the Most Accurate Estimate stands at 74 cents, the Zacks Consensus Estimate is pegged a penny lower. 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: Alaska Air Group carries a Zacks Rank #2 (Buy). Note that stocks with a favorable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) 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.

Other Stocks to Consider

Investors interested in the broader Transportation sector may consider ArcBest Corporation ARCB, Expeditors International of Washington EXPD and Allegiant Travel Company ALGT as these stocks possess the right combination of elements to beat on earnings in the next releases.

ArcBest has an Earnings ESP of +4.78% and a Zacks Rank of 2.  The company will report fourth-quarter financial figures on Jan 30.

Expeditors has an Earnings ESP of +0.39% and a Zacks Rank of 1. The company will announce fourth-quarter results on Feb 19. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allegiant has an Earnings ESP of +2.14% and a Zacks Rank of 2. The company is scheduled to release fourth-quarter earnings numbers on Jan 30.

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