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Will Uptick in Travel Demand Lift Southwest (LUV) Q1 Earnings?

Southwest Airlines Co. LUV is scheduled to report first-quarter 2021 results on Apr 22.

The Zacks Consensus Estimate for the company’s first-quarter loss has narrowed by 3.1% in the past 60 days. Moreover, 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 26.3%.

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

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. Price and EPS Surprise
Southwest Airlines Co. Price and EPS Surprise

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

Factors to Note

With Americans getting vaccinated and coronavirus-led restrictions easing, air-travel demand has improved in 2021 after being significantly suppressed for the most part of 2020. The uptick in travel demand is expected to reflect in Southwest’s passenger revenues in the first quarter. Evidently, the Zacks Consensus Estimate for first-quarter passenger revenues indicates a 1.5% increase from fourth-quarter 2020’s reported figure. However, given the year-over-year weakness in travel demand, the consensus mark for passenger revenues shows a 56.1% drop from the reported number in first-quarter 2020. With this anticipated decline in passenger revenues, the Zacks Consensus Estimate for total revenues hints at a 52.8% fall from the year-ago reported number.

In response to the low demand, Southwest is cutting back its capacity. The carrier expects first-quarter capacity to reduce by around 35% year over year and by 38% from the 2019 levels due to the low-demand scenario. The Zacks Consensus Estimate for first-quarter capacity suggests a 34.8% decrease from that reported a year ago.

Reduced costs from lower capacity are expected to have supported the airline’s bottom line in the to-be-reported quarter. The carrier anticipates operating expenses (excluding fuel and oil expenses and special items) to decline 15-20% year over year in the first quarter, primarily due to lower capacity as well as an estimated $400 million of cost savings from voluntary separation and extended leave programs.

However, with fuel prices having risen lately, the increased fuel expenses might have partly affected the bottom line. The Zacks Consensus Estimate for fuel costs per gallon, including fuel tax (economic), implies a 50% surge from the year-ago quarter’s 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 +1.07% as the Most Accurate Estimate is pegged at a loss of $1.83, narrower than the Zacks Consensus Estimate of a loss of $1.85. 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 Q4 Earnings

In the last-reported quarter, the company incurred a loss of $1.29 per share (excluding 25 cents from non-recurring items), narrower than the Zacks Consensus Estimate of a loss of $1.69. In the year-ago period, the company had reported earnings of 98 cents per share. Results were affected by significant decline in passenger revenues, which was caused bypersistent weakness in air-travel demand amid coronavirus concerns.

Other Stocks to Consider

Investors interested in the broader Transportation sector may consider Alaska Air Group ALK, Herc Holdings HRI and JetBlue Airways Corporation JBLU as these stocks too possess the right combination of elements to beat on earnings this reporting cycle.

Alaska Air Group has an Earnings ESP of +1.01% and carries a Zacks Rank of 3. The company will release first-quarter 2021 results on Apr 22.

Herc Holdings has an Earnings ESP of +18.81% and sports a Zacks Rank of 1, at present. The company will release first-quarter 2021 results on Apr 22.

JetBlue Airways has an Earnings ESP of +4.49 and carries a Zacks Rank #3. The company is set to release first-quarter 2021 earnings numbers on Apr 27.

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