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Can Strong Travel Demand Aid Alaska Air's (ALK) Q2 Earnings?

Zacks Equity Research

Alaska Air Group ALK is scheduled to report second-quarter 2019 results on Jul 25, after the market closes.

Last quarter, the company delivered a positive earnings surprise of 30.8%. Total revenues also beat the Zacks Consensus Estimate. Moreover, the top and the bottom-line improved year over year. Notably, the company boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average being 10.4%.

The company is likely to repeat its success story in the soon-to-be-reported quarter. Evidently, the Zacks Consensus Estimate for second-quarter earnings has moved 14.7% north in the last 60 days.

Why a Likely Positive Surprise?

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

Earnings ESP: Alaska Air has an Earnings ESP of +1.02% as the Most Accurate Estimate is pegged at $2.13 per share, higher than the Zacks Consensus Estimate of $2.11. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Alaska Air carries a Zacks Rank #2 (Buy). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) alongside a positive ESP 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 witnessing negative estimate revisions.

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

 

Factors Likely at Play

Strong passenger revenues on the back of upbeat travel demand should aid the company’s top line in the second quarter. Notably, the Zacks Consensus Estimate for passenger revenues in the to-be-reported quarter stands at $2,118 million, higher than $1,945 million reported in the year-ago quarter. Moreover, the company anticipates total unit revenues to rise approximately 5% year over year in the quarter to be reported.

With fuel costs comprising a major chunk of airline expenditures, lower fuel expenses in the quarter are likely to boost earnings. Notably, the company estimates fuel costs to decline 1.3% to $2.27 per gallon. The Zacks Consensus Estimate for the same is also pegged at $2.27 compared with $2.30 reported in the year-ago period.

However, with fuel prices moderating, non-fuel unit costs have been limiting bottom-line growth. Non-fuel unit costs are predicted to increase 2.5% in the second quarter. This may partly affect the bottom line in the impending quarterly results.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider American Airlines Group AAL, Canadian National Railway Company CNI and Golar LNG Limited GLNG as these stocks too possess the right mix of elements to beat on earnings this reporting cycle.

American Airlines has an Earnings ESP of +0.85% and a Zacks Rank #3. The company will report second-quarter 2019 results on Jul 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Canadian National stock is a #3 Ranked player and has an Earnings ESP of +0.71%. The company will post second-quarter 2019 earnings numbers on Jul 23.

Golar LNG has an Earnings ESP of +5.91% and a Zacks Rank of 3. This company is scheduled to announce second-quarter 2019 financial figures on Aug 22.

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