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Alaska Air Group (ALK) Q2 Earnings: A Beat in the Cards?

Alaska Air Group ALK is slated to report second-quarter 2017 financial numbers on Jul 26, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 0.96%. It also has an impressive earnings track record. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average beat of 5.21%.

Why a Likely Positive Surprise?

Our proven model shows that Alaska is likely to beat on earnings this quarter too, since it has the perfect combination of two key ingredients.

Zacks ESP:  Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.40%. This is because the Most Accurate estimate stands at $2.51, whereas the Zacks Consensus Estimate is pegged lower at $2.50. A favorable Zacks ESP serves as a leading indicator 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 carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating estimates.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

The acquisition of Virgin America will continue to augment the company’s top line in its second quarter, owing to increased passenger revenues. 

The carrier’s expansion efforts are also encouraging. In May 2017, the carrier started non-stop flights connecting Philadelphia and Portland, OR to meet the growing demand during summer. The flights have been operating on a daily basis from May 22 and will continue until Aug 26.

The company’s traffic results in May and June are also impressive. Consolidated traffic (measured in revenue passenger miles, RPMs) increased 7.6% and 8.3% in May and June, respectively. Additionally, load factor or percentage of seats filled by passengers increased 140 basis points (bps) and 100 bps in May and June respectively, owing to an expansion in traffic growth in excess of capacity expansion. 

However, in May 2017, pilots of Horizon Air, a subsidiary of Alaska approved of an amendment to the existing eight-year pay-related contract. This will increase labor costs significantly, thus hurting the bottom line in the second quarter.

Alaska Air Group, Inc. Price and EPS Surprise

 

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

Others Stocks to Consider

Investors interested in the broader transportation sector may also consider other top-ranked stocks like American Airlines Group, Inc. AAL, Norfolk Southern Corporation NSC and Canadian National Railway Company CNI, since our model shows that all these possess the right combination of elements to come up with an earnings beat in the next release.

American Airlines has an Earnings ESP of +2.19% and a Zacks Rank #1. The company is slated to release its second-quarter 2017 results on Jul 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Norfolk Southern has an Earnings ESP of +0.61% and a Zacks Rank #2. The company will report its second-quarter 2017 financial numbers on Jul 26.

Canadian National Railway has an Earnings ESP of +2.00% and a Zacks Rank #2. The company will release its second-quarter 2017 earnings numbers on Jul 25.

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American Airlines Group, Inc. (AAL): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
Canadian National Railway Company (CNI): Free Stock Analysis Report
 
Norfolk Souther Corporation (NSC): Free Stock Analysis Report
 
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