This week has been a packed calendar of earnings reports from companies representing many different sectors of the economy. So far, we have seen a good number of second-quarter earnings reports from S&P 500 companies, with earnings for these index members increasing 8.7% on revenues up 5.2%.
The overall earnings environment is expected to remain favorable, supported by strong performance in the technology sector.
Several airlines are set to go public this week, including American Airlines (AAL) and Southwest Airlines (LUV). Both stocks have been in the red so far this year, with American’s decline being the more pronounced.
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We can use the recent performance of peer United Airlines (UAL) as a bit of a guide, so let’s take a closer look at what investors can expect from these two companies.
United Airlines beats EPS estimates
United Airlines beat the Zacks Consensus EPS estimate but missed revenue estimates by a small margin, and shares reacted slightly positively after the earnings report. Profits fell 18% year over year, but revenue increased nearly 6%.
Overall results reflect continued consumer demand for travel, with UAL carrying more passengers than ever before in the second quarter. Capacity also increased 8.3% compared to the same period last year, and the airline carried a record number of daily passengers of 565,000.
It was a decent quarter for the company, and its shares have continued to trend higher since then. Nevertheless, analysts lowered their earnings forecasts for UAL’s current fiscal year following the announcement, as shown below.
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While the stock has performed well recently, analyst revisions following the earnings release raise questions about the sustainability of this trend.
Southwest Airlines and American Airlines
Southwest Airlines and American Airlines have each revised down their earnings estimates and are expected to see revenue declines compared to the same period last year. In fact, Southwest Airlines is currently a Zacks Rank 4 (Sell) and American Airlines is currently a Zacks Rank 5 (Strong Sell).
Southwest Airlines Revised Snapshot –
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Image source: Zacks Investment Research
American Airlines Revised Snapshot –
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Image source: Zacks Investment Research
The downward revisions cast a shadow over the near-term outlook for stock performance, partially explaining the weak performance so far this year. However, it is worth noting that favorable guidance can lead to upward revisions to earnings forecasts, supporting a more positive outlook following earnings releases.
Should I buy it?
United Airlines (UAL) saw some positives after reporting its quarterly earnings, but its subsequent negative revisions deserve scrutiny. United’s results reflect continued consumer strength in travel, but the airline’s profitability has declined significantly.
The story continues
Southwest Airlines (LUV) and American Airlines (AAL) lowered their earnings forecasts following United’s announcement, which is not a good development. With the earnings outlook unclear, investors are better off staying on the sidelines and focusing on stocks with upwardly revised earnings estimates.
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United Airlines Holdings Inc. (UAL) : Free Stock Analysis Report
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