Will Southwest Airlines (LUV) Disappoint In Q3 Earnings?

Low-cost carrier Southwest Airlines Co. (NYSE:LUV) is scheduled to report third-quarter 2016 results on Oct 26, before market opens.

Last quarter, the company missed the Zacks Consensus Estimate for earnings by 2.46%. The company however surpassed estimates in three of the last four quarters, with an average earnings beat of 1.12%.

Factors to Consider

Southwest suffered a technology outage in July than had an adverse impact on its results. Due to flight delays and cancellations, the company expects revenue per available seat mile (RASM) to decline in the band of 3.5% to 4.5% instead of 3% to 4% projected earlier. Another matter of concern is the result of the company’s various tentative agreements with employees. Moreover, the company faces tough competition from the likes of JetBlue Airways Co (NASDAQ:JBLU) and Delta Air Lines Inc. (NYSE:DAL) .

However, traffic and load factor for the company improved in September. We are positive on the company’s efforts to increase capacity which would eventually lead to a rise in revenues. We wait to see how the company performs despite the prevailing challenges.

Earnings Whispers

Our proven model does not conclusively show that Southwest is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. As you will see below, this is not the case for Southwest.

Zacks ESP: The Most Accurate estimate stands at 87 cents and Zacks Consensus Estimate is pegged at 88 cents. Thus the ESP is -1.14%.

Zacks Rank: Southwest carries a Zacks Rank #5 (Strong Sell). Please note, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a 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) is expected to report third-quarter earnings on Nov 28. The company has an Earnings ESP of +16.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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