Southwest Airlines Co. (LUV) is set to release its second-quarter 2013 results before the opening bell on Jul 25, 2013.
In the last quarter, the company delivered a 133.33% earnings surprise. Let’s see how things are shaping up for this announcement.
Factors to be Considered this Quarter
Southwest Airlines has adopted a number of strategies to increase revenues and reduce costs over the next three years. These include fleet restructuring, introduction of various customer friendly programs, network expansion and capacity management. We believe that these initiatives will attract customers and strengthen the company’s position in the industry. A healthy financial profile will likely support its endeavors. However, a highly competitive environment and regulations imposed by the federal authority pose major impediments to growth. Moreover, technological failures and labor troubles are also likely to weaken the performance of the company.
Our proven model does not conclusively show that Southwest Airlines is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Negative Zacks ESP: This is because the Most Accurate Estimate is 38 cents while the Zacks Consensus Estimate is higher at 39 cents. This leads to an ESP of -2.56% for Southwest Airlines.
Zacks Rank #3 (Hold): Southwest Airlines’s Zacks Rank #3, decreases the predictive power of ESP.
We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of -2.56% combined with a Zacks Rank # 3 lowers the possibility of an earnings surprise.
Other Stocks to Consider
Here are some other companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.
The Boeing Company (BA) has an Earnings ESP of +1.27% and carries a Zacks Rank #2 (Buy).
Spirit Airlines, Inc. (SAVE) has an Earnings ESP of +3.33% and carries a Zacks Rank #3 (Hold).
General Dynamics Corp. (GD) has an Earnings ESP of +0.61% and carries a Zacks Rank #3 (Hold).
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