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What's in Store for Southwest (LUV) This Earnings Season?

Southwest Airlines Co. LUV is scheduled to report second-quarter 2021 results on Jul 22.

The Zacks Consensus Estimate for the company’s second-quarter loss has narrowed by 40% in the past 60 days. The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in three of the past four quarters (missed estimates in one quarter), the average beat being 10.5%.

Let’s see how things are shaping up for Southwest this earnings season.

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote

Factors to Note

With improvement in air-travel demand (although it is still below the pre-pandemic level), uptick in passenger revenues (accounts for bulk of the top line) is expected to get reflected in Southwest’s top line in the to-be-reported quarter. The Zacks Consensus Estimate for passenger revenues in the second quarter indicates more than 100% surge from the sequential quarter’s reported figure. The same for traffic, measured in revenue passenger miles, suggests an 80.2% jump from the first-quarter 2021 reported figure. The consensus mark for total revenues shows an approximate 89% rise from the reported figure in first quarter. The abovementioned second-quarter estimates represent a marked improvement from the comparable period in 2020 when travel demand was significantly depressed due to rising coronavirus cases and large-scale travel restrictions.

With uptick in travel demand, Southwest has increased its capacity. The Zacks Consensus Estimate for capacity, measured in available seat miles, indicates a 45.4% rise from the first-quarter reported figure. The same suggests an 88.1% increase from the year-ago reported figure.

However, with rise in fuel prices, increased expenses on fuel might have hurt the company’s bottom line in the second quarter. For the second quarter, the company forecasts economic fuel costs per gallon to have been between $1.90 and $2, higher than $1.33 reported in the year-ago period. The projection is also above $1.7 reported in the first quarter. The Zacks Consensus Estimate for second-quarter economic fuel cost per gallon hints at a 14.7% rise from the sequential quarter’s reported figure and a 46.6% increase from the second-quarter 2020 reported figure.

Earnings Whispers

The proven Zacks model predicts an earnings beat for Southwest this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Southwest has an Earnings ESP of +56.82% as the Most Accurate Estimate is pegged at a loss of 14 cents, narrower than the Zacks Consensus Estimate of a loss of 33 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Southwest carries a Zacks Rank #3.

Highlights of Q1 Earnings

In the last-reported quarter, the company incurred a loss of $1.72 per share (excluding $1.91 from non-recurring items), narrower than the Zacks Consensus Estimate of a loss of $1.82.  Operating revenues of $2,052 million surpassed the Zacks Consensus Estimate of $2,031.7 million. The top line declined 51.5% year over year, with passenger revenues sliding 55.5%.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider United Airlines UAL, Herc Holdings HRI and Alaska Air Group ALK as these stocks possess the right combination of elements to beat on earnings this reporting cycle as well.

United Airlines has an Earnings ESP of +10.47% and is Zacks #3 Ranked, presently. The company will release second-quarter 2021 results on Jul 20.

Herc Holdings has an Earnings ESP of +1.85% and carries a Zacks Rank #2 at present. The company will release second-quarter 2021 results on Jul 22.

Alaska Air has an Earnings ESP of +39.75% and is currently a Zacks #3 Ranked player. The company will release second-quarter 2021 results on Jul 22.

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United Airlines Holdings Inc (UAL): Free Stock Analysis Report
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Herc Holdings Inc. (HRI): Free Stock Analysis Report
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