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Southwest Airlines (LUV) Q1 Earnings: A Surprise in Store?

Southwest Airlines Co. LUV is set to release first-quarter 2016 results, before the market opens on Apr 21.

In the last quarter, the company recorded a 0.00% earnings surprise. Let’s see how things are shaping up for this announcement.

Factors at Play this Quarter

Southwest Airlines continues to benefit from the present slump in fuel prices which we believe will boost the bottom line in the to-be-reported quarter. Moreover, the company’s fleet restructuring initiatives, launch of new routes, introduction of value-added services and expansion to Caribbean and Latin American destinations are likely to propel growth moving ahead.

However, stiff competition from low-cost carriers coupled with capacity expansion and discounted air fare offers by the company may impact its top line in the quarter.

Earnings Whispers

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 Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are poised at 90 cents. Hence, the ESP is 0.00%.

Zacks Rank: Southwest Airlines carries a Zacks Rank #3 (Hold). While this increases the predictive power, we also need to have a positive ESP to be confident of an earnings surprise.

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

Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

SkyWest Inc. SKYW with an Earnings ESP of +16.00% and a Zacks Rank #2.

United Continental Holdings, Inc. UAL with an Earnings ESP of +0.86% and a Zacks Rank #3.

Canadian Pacific Railway Limited CP with an Earnings ESP of +1.11% and a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. http://www.zacks.com/registration/pfp/?ALERT=RPT_7BST_LP194&... blog">Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SOUTHWEST AIR (LUV): Free Stock Analysis Report
 
SKYWEST INC (SKYW): Free Stock Analysis Report
 
CDN PAC RLWY (CP): Free Stock Analysis Report
 
UNITED CONT HLD (UAL): Free Stock Analysis Report
 
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