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American Airlines Group (AAL) Likely to Beat on Q3 Earnings

American Airlines Group Inc.AAL is slated to release its third-quarter 2015 results before the market opens on Oct 23.

Last quarter, American Airlines Group delivered a positive earnings surprise of 1.16%. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that American Airlines Group is poised to beat earnings this quarter as it has the right combination of 2 key components:

Zacks ESP : The carrier currently has an earnings ESP of +1.48%. This is because the Zacks Consensus Estimate is $2.70 per share, while the Most Accurate Estimate is pegged higher at $2.74.

Zacks Rank : American Airlines Group carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a higher chance of beating earnings. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of American Airlines Group's Zacks Rank #2 and earnings ESP of +1.48% makes us confident of an earnings beat at the company.

What's Driving the Better-than-Expected Earnings?

American Airlines Group boasts a solid earnings history, having delivered positive earnings surprises in each of the trailing four quarters, with an average beat of 1.36%. The company, along with peers such as Southwest Airlines Co. LUV , is benefiting immensely from low fuel costs. American Airlines Group, which does not hedge fuel costs, expects to generate massive savings in 2015 on the back of soft oil prices . Including taxes, the company expects average fuel price per gallon (mainline) in the range of $1.65 to $1.70 as against $1.90 in the second quarter of 2015.

American Airlines Group forecasts a 6% to 8% drop in passenger revenue per available seat mile (PRASM: a measure of unit revenue) for the third quarter of 2015. On the other hand, pre-tax margin (exclusive of special items) is likely to be in the band of 17% to 18% (old guidance: 16% to 18%).

Moreover, we believe continuous expansion of routes, increased flight frequencies and augmented travel demand should boost the upcoming quarter's performance. We are impressed by the company's efforts to reward shareholders consistently through stock repurchases and dividend payments. We expect an update on its buyback plans on the third quarter conference call.

Other 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:

Canadian National Railway Company CNI , with an earnings ESP of +1.15% and a Zacks Rank #3. The company is slated to release its third quarter 2015 results on Oct 27.

Ryanair Holdings RYAAY , with an earnings ESP of +5.30% and a Zacks Rank #1. The company is slated to release its quarterly results on Nov 2.

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SOUTHWEST AIR (LUV): Free Stock Analysis Report

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AMER AIRLINES (AAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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