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Southwest (LUV) Likely Q2 Earnings Picture Amid Coronavirus Woes

Southwest Airlines Co. LUV is scheduled to report second-quarter 2020 results on Jul 23, before market open.

The impact of coronavirus is expected to have been greater on the carrier’s second-quarter performance than on its first, as air-travel demand was significantly below year-ago levels in the entire April-June period, while the first-quarter impact was limited mostly to March.

Let’s delve deeper.

Factors at Play

Southwest is anticipated to have suffered substantial loss of passenger revenues, accounting for approximately 90% of the top line, in the second quarter due to coronavirus-induced weak travel demand. The Zacks Consensus Estimate for second-quarter passenger revenues indicates an 85.4% drop from the year-ago reported figure. Additionally, the consensus mark for total revenues suggests an 86.6% plunge from revenues reported in second-quarter 2019.

With travel demand way below year-ago levels, the airline reduced capacity significantly during the second quarter. The Zacks Consensus Estimate for second-quarter capacity hints at a 55.6% decline from second-quarter 2019 reported capacity.

With fuel expenses comprising a major chunk of airline expenditures, low fuel prices are expected to have aided the bottom line, thus partly offsetting the decline in passenger revenues. The carrier estimates fuel price of $1.25-$1.35 per gallon for the second quarter compared with $2.13 reported in the year-ago period. The Zacks Consensus Estimate for the same implies a 44.1% decline from the year-ago reported number.

Southwest Airlines Co. Price and EPS Surprise

 

Southwest Airlines Co. Price and EPS Surprise

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

Earnings Whispers

The proven Zacks model predicts an earnings beat for Southwest in the second quarter of 2020. This is because the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Southwest has an Earnings ESP of +18.02% as the Most Accurate Estimate is pegged at a loss of $2.14 while the Zacks Consensus Estimate is pinned at a loss of $2.61. 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 delivered an earnings surprise of 68.7% with narrower-than-expected loss. Operating revenues lagged the Zacks Consensus Estimate and also declined 17.8% year over year with passenger revenues sliding 19% due to coronavirus-induced drop in passenger demand.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider United Airlines UAL, Alaska Air Group, Inc. ALK and Air Lease Corporation AL as these stocks too possess the right combination of elements to beat on earnings this reporting cycle.

United Airlines has an Earnings ESP of +20.59% and a Zacks Rank of 3. The company will release second-quarter earnings on Jul 21.

Alaska Air has an Earnings ESP of +16.33% and a Zacks Rank #3. This company is set to release second-quarter financial numbers on Jul 23.

Air Lease has an Earnings ESP of +23.32% and a Zacks Rank #3. The company will announce second-quarter earnings numbers on Aug 6.

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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.

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