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American Airlines Group (AAL) Q2 Earnings: What's in Store? - Analyst Blog

American Airlines Group Inc. AAL is slated to release its second-quarter 2015 results before the market opens on Jul 24.

Last quarter, American Airlines Group delivered a positive earnings surprise of 1.76%. Moreover, the company’s earnings have surpassed the Zacks Consensus Estimate in all the prior four quarters, with an average beat of 1.58%. Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

We believe continuous expansion of routes, increased flight frequencies and augmented travel demand should boost the to-be-reported quarter’s performance. Further, declining oil prices coupled with the ongoing integration of U.S. Airways should benefit the company in the upcoming quarters.

Notably, American Airlines Group reported impressive traffic numbers for June 2015. The company saw its June air traffic move up 2.8% year over year on a 2.4% rise in capacity. American Airlines Group also trimmed its 2015 capacity growth view to 1% (earlier estimated at 2%). This action came close on the heels of the news of a probe by the Department of Justice on the possibility of unlawful co-ordination to limit the availability of seats, with the objective of keeping airfares high.

However, the disappointing PRASM forecast for the second quarter comes as a dampener. The metric is expected to decline in the range of 6% and 8% in the quarter. Further, stiff competition from low-cost carriers as well as from major airlines that have cut fares in order to attract customers may impact the company’s profits. Additionally, the ongoing dispute with the Gulf carriers is another cause for concern and may weigh on the airline’s quarterly performance.

Earnings Whispers

Our proven model does not conclusively show that American Airlines Group 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 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: American Airlines Group has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at $2.59.

Zacks Rank: American Airlines Group has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
    
Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

United Continental Holdings, Inc. UAL has an earnings ESP of +0.91% and a Zacks Rank #3.

United Parcel Service, Inc. UPS has an earnings ESP of +0.79% and a Zacks Rank #3.

Ryder System, Inc. R has an earnings ESP of +0.62% and a Zacks Rank #3.

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UTD PARCEL SRVC (UPS): Free Stock Analysis Report
 
RYDER SYS (R): Free Stock Analysis Report
 
UNITED CONT HLD (UAL): Free Stock Analysis Report
 
AMER AIRLINES (AAL): Free Stock Analysis Report
 
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Zacks Investment Research