Spirit Airlines (SAVE) Q3 Earnings: Another Beat In Store?

We expect Miramar, FL-based Spirit Airlines (NASDAQ:SAVE) to report better-than-expected earnings in the third quarter of 2016. The carrier will release its results on Oct 25, before the market opens.

In the second quarter, the carrier had reported a positive earnings surprise of 3.74%. Results were aided by low oil prices. Moreover, earnings improved 7.8% on a year-over-year basis. Average economic fuel price per gallon declined 29.3% to $1.47. The carrier has an impressive track record with respect to earnings per share. Spirit Airlines outpaced the Zacks Consensus Estimate in each of the last four quarters with an average beat of 4.35%.

We expect another bottom-line outperformance this quarter. An earnings beat should not be too difficult as the Zacks Consensus Estimate for the third quarter of 2016 is $1.10 per share, well below the year-ago estimate of $1.28.

SPIRIT AIRLINES Price and EPS Surprise

SPIRIT AIRLINES Price and EPS Surprise | SPIRIT AIRLINES Quote

Earnings Whispers

Our quantitative model shows that Spirit Airlines is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP:The Earnings ESP for Spirit Airlines is +1.82% with the Most Accurate estimate exceeding the Zacks Consensus Estimate by 2 cents.

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

The combination of Spirit Airlines’ Zacks Rank #3 and a positive ESP makes us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

The most favorable development in the third quarter was the U.S. Department of Transportation’s final approval to Spirit Airlines and seven other carriers, including United Continental Holdings (NYSE:UAL) and American Airlines Group (NASDAQ:AAL) , to initiate commercial flights to Havana. We are positive on the decision, which came on Aug 31, as Havana is a favorite tourist spot. We expect a detailed commentary on the issue at the third-quarter conference call.

We also appreciate Spirit Airlines’ efforts to reward its shareholders. Moreover, its constant efforts to expand and modernize its fleet are encouraging. In addition, we expect the bottom-line performance in the third quarter to be aided by low fuel costs. The company expects fuel price (inclusive of all cash settled hedges) to be $1.56 per gallon, well below the year-ago figure.

Though the company continues to face difficulties in terms of top-line growth, we are encouraged by the improved third-quarter forecast for total revenue per available seat mile (TRASM: a key measure of unit revenue). The carrier now expects the metric to decline approximately 7% (the earlier projection had called for a decline of approximately 9%).

Another Stock to Consider

Here is another transportation company you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Navios Maritime Holdings Inc. (NYSE:NM) has an Earnings ESP of +15.39% and a Zacks Rank #2. The company is expected to report third-quarter earnings on Nov 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

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