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Will Low Fuel Prices Lift United Airlines (UAL) Q3 Earnings?

Zacks Equity Research

United Airlines Holdings Inc UAL is slated to release third-quarter 2019 results on Oct 15, after the market closes.

In the last reported quarter, the company delivered a positive earnings surprise of 3.4%. Moreover, the bottom line improved more than 30% year over year, primarily on lower fuel costs. Operating revenues also surpassed the Zacks Consensus Estimate and increased year over year on higher passenger revenues. Notably, the company boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the last four quarters, the average beat being 13.6%.

Let’s see, how things shape up for this earnings season.

What the Zacks Model Unveils

The proven Zacks model shows that United Airlines is likely to beat on earnings in the third quarter as well because it comprises a perfect combination of the following two key ingredients:

Earnings ESP: United Airlines has an Earnings ESP of +3.18% as the Most Accurate Estimate is pegged at $4.05, above the Zacks Consensus Estimate of $3.93. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: United Airlines has a Zacks Rank #3 (Hold). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 along with a positive ESP have significantly higher chances of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

United Airlines Holdings Inc Price and EPS Surprise

 

United Airlines Holdings Inc Price and EPS Surprise
United Airlines Holdings Inc Price and EPS Surprise

United Airlines Holdings Inc price-eps-surprise | United Airlines Holdings Inc Quote

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Factors Likely at Play

Akin to the last few quarters, strong demand for United Airlines’ services should boost passenger revenues (accounts for bulk of the top line) in the third quarter too. Evidently, the Zacks Consensus Estimate for third-quarter passenger revenues stands at $10,535 million, indicating an increase from $10,120 million reported in the third quarter of 2018.

Moreover, the company anticipates passenger unit revenues to grow near the mid-point of 0.5-2.5% in the soon-to-be-reported quarter despite a 50-basis point negative impact from weak demand scenario in China including Hong Kong. The consensus mark for passenger unit revenues is pegged at 13.95 cents, suggesting a rise from 13.73 cents reported in the year ago period. Meanwhile, adjusted pre-tax margin is estimated in the range of 10-12%.

With fuel prices at modest levels, United Airlines’ earnings are anticipated to get a boost as fuel expenses comprise a major chunk of the airline expenditures. Notably, the consensus estimate for average fuel rice per gallon stands at $2.15, implying a decline from $2.32 reported in the third quarter of 2018. The company expects the same between $2.12 and $2.22.

However, numerous flight cancellations due to the grounding of the MAX jets are affecting the airline’s operations. Hurricane Dorian also disrupted services and caused multiple flight cancellations. This might impact the company’s third-quarter results.

Other Stocks to Consider

Investors interested in the airline space may also consider Allegiant Travel Company ALGT, Southwest Airlines Co. LUV and Hawaiian Holdings, Inc. HA as these stocks too possess the right mix of elements to beat on earnings in their next releases.

Allegiant has an Earnings ESP of +6.14% and a Zacks Rank #2. The company will report third-quarter 2019 results on Oct 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwest has an Earnings ESP of +0.31% and a Zacks Rank of 3. This company will release third-quarter financial numbers on Oct 24.

Hawaiian Holdings is a Zacks #3 Ranked company and has an Earnings ESP of +2.29%. The company will announce third-quarter earnings results on Oct 22.

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Allegiant Travel Company (ALGT) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Hawaiian Holdings, Inc. (HA) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
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Zacks Investment Research