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Airline Stocks' Q3 Earnings Due on Oct 25: ALK, ALGT & SKYW

The Q3 earnings season is picking up pace with multiple companies reporting earnings everyday. According to the latest Earnings Preview, by the end of this week 267 S&P 500 companies will release their quarterly numbers. Out of them, 180 will be reporting during the course of this week.

Per the report, the entire S&P 500 fraternity is projected to end the Q3 reporting cycle with bottom-line growth of 2.6% on a year-over-year basis. The same set of companies is projected to witness top-line growth to the tune of 5%.  These projections compare unfavorably with the readings in Q2, when revenues increased 5.5% and earnings expanded 11.2%. In fact, the timid Q3 projections are reflective of the headwinds including back-to-back hurricanes (Harvey, Irma and Maria) and the devastating Mexico earthquake.

The highly diversified Zacks Transportation sector (one of the 16 Zacks sectors) has been hit severely by the above mentioned natural disasters as well. This is because the sector includes travel focussed stocks such as airlines. Markedly, the gloomy picture for this sector is reflected by declining earnings projection for Q3 to the tune of 14.9% year over year. The estimated growth in revenues is pegged at a modest 4.5% compared with an impressive growth of 10.1% in Q2.

Turbulence Awaits Airlines in Q3?

Given that the airline stocks form an integral part of the transportation sector, it is needless to say that this particular space is undergoing a rough phase mainly due to the natural calamities. Even though the likes of Delta Air Lines DAL and United Continental Holdings UAL have outperformed in Q3, results of these carriers have been hit hard by the hurricanes.

Evidently, Delta's pre-tax income was reduced to the tune of $120 million in the third-quarter due to Irma as it had to call of multiple flights. Meanwhile, United Continental cancelled 8,300 flights owing to Harvey, Irma, and Maria. Consequently, its third-quarter pre-tax income was hurt to the tune of approximately $185 million.

Moreover, surging costs (fuel as well as labor) have resulted in year-over-year bottom-line contractions for both these legacy carriers. Of late, fuel costs are on the rise with oil prices crossing the $50 a barrel threshold mark. This upsurge can be attributed to the improving demand outlook for the commodity and OPEC deal extension talks. The trend is expected to continue in the remainder of Q3 with high costs hurting the bottom line of carriers.

In fact, unfavorable scenario substantiates the bearish Zacks Industry Rank of 245 (out of 250 plus groups) carried by the Zacks Airline industry. This unfavorable rank places the companies in the bottom 4% of the Zacks industries.

In this adverse situation, investors interested in the airline space will keenly await Q3 reports from key sector participants like Alaska Air Group ALK,Allegiant Travel Company ALGT and SkyWest Inc. SKYW on Oct 25.

According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase its odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Alaska Air Group together with its partner regional carriers serves more than 100 cities across North America. Based in Seattle, WA, this airline company is not expected to report better-than-expected earnings per share in this quarter.

The carrier's bottom line is expected to be hurt by high costs.The Zacks Consensus Estimate for third-quarter fuel price per gallon is 1.77, higher than the 1.71 reported in the second quarter of 2017.

In fact, our proven model too does not conclusively show that Alaska Air Group is likely to beat earnings estimates this quarter. This is because the company has an Earnings ESP of -4.02% (the Zacks Consensus Estimate of $2.32 per share is currently pegged at nine cents above the Most Accurate estimate) and a Zacks Rank #5 (Strong Sell).

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

Our model did not predict an earnings beat earlier too. When we issued its Q3 earnings preview article, Alaska Air Group had an Earnings ESP of -3.40%, while the Zacks Rank remained the same.

Alaska Air Group, Inc. Price and EPS Surprise

 

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

 

 Allegiant Travel Company is the parent company of Allegiant Air. As is the case with Alaska Air, Allegiant Travel Company’s bottom line is also expected to be hurt by escalated costs.

The Zacks Consensus Estimate for third-quarter operating cost per available seat mile, excluding fuel (CASM-ex fuel), is 7.01 cents, 9.2% higher than the figure reported in the second quarter of 2017. The company expects the metric to grow between 16.7% and 17.1% in the to-be-reported quarter.

In fact, our proven model too does not conclusively show earnings beat for this Las Vegas-based company in Q3. This is because Allegiant Travel has an Earnings ESP of -4.76% (the Zacks Consensus Estimate of $1.37 per share is currently pegged at six cents above the Most Accurate estimate) and a Zacks Rank #5 (read more: Will Rising Costs Affect Allegiant's Q3 Earnings?).

Allegiant Travel Company Price and EPS Surprise

 

Allegiant Travel Company Price and EPS Surprise | Allegiant Travel Company Quote

 

SkyWest, through its subsidiaries, operates a regional airline in the United States. This St. George, UT-based carrier is focused on streamlining its operations. Going forward, the carrier aims to reduce the 50-seat jets in its fleet and add new E175 aircraft.  Notably, a reduction in block hours (a measure of aircraft utilization) is in sync with its fleet transition plans.

Currently, the Zacks Consensus Estimate for third-quarter block hours is 468,860, 5% lower than the figure reported a year ago. In fact, the same for third-quarter consolidated capacity (measured in available seat miles) is 8,516 million, approximately 2% lower than the figure reported in the previous year.

However, according to our proven model this SkyWest has less chances of beating the Zacks Consensus Estimate this quarter, despite its Zacks Rank #3. This is because it has an Earnings ESP of -0.25%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SkyWest, Inc. Price and EPS Surprise

 

SkyWest, Inc. Price and EPS Surprise | SkyWest, Inc. Quote

 

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Allegiant Travel Company (ALGT): Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK): Free Stock Analysis Report
 
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