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Traders Digest Southwest Earnings As Twitter Story Dominates Sentiment

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Shares of Southwest (NYSE: LUV) were whipsawed today, going from up roughly 5 percent in the premarket to unchanged on the open on Thursday. The company issued great financial statements. Earnings beat expectations by roughly 27 percent and revenues beat by about 3 percent. For a stock that is up nearly 100 percent inside of 365 days, there is still a strong growth story there.

The airliner best known for acquiring cheap oil contracts during the recent $150 peak in crude is said to be expanding its seat mileage. Southwest is said to be adding 17 Boeing 737's to the its fleet in 2014. Fuel costs remain low at $3.02 per gallon and costs should drop to a range of $2.95 - $3.00 going into Q3 according to this mornings filing. The expectation of a 3 percent range on July passenger unit revenue.  On Wednesday Delta hit the wires with an EPS of $1.04 versus consensus estimate of $1.03 but saw PRASM (Passenger Revenue per Available Seat Mile) for Delta Airlines (NYSE: DAL) missed in June.  According to Morgan Stanley (NYSE: MS) analyst John Godyn this morning "raises the probability of a conservative 3Q PRASM guidance all else equal". 

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Given Southwest's strength relative to other options within the airliner space, it's a wonder the stock was trading north of 5 percent Thursday morning before earnings were released.  As the 9AM EDT hour approached news began to swirl on Twitter that a customer was booted off a Southwest airline in Denver.  The customer was upset that as a preferred Southwest customer he couldn't have his 6-year and 9-year old daughters board with him to fly home to Minnesota.  Southwest issued a statement more will follow, however social media proves again to be a sentiment monster as automated trading machines read the Southwest Twitter sentiment and promptly sold it off.  Southwest has plenty of potential that traders may be taking a day to digest.  The impact of social sentiment on prices is clearly evident by the trading behavior of Southwest's stock today.

Southwest 1-Minute Chart For July 24, 2014

With summer wrapping up expect Southwest to benefit from increased overseas routes (CEO said today to eye 50 destinations overseas) along with a boost from increased travel bookings.

As Thursday trading session wraps up, Southwest shares are trading down roughly 1 percent to $28.55.

Latest Ratings for LUV

DateFirmActionFromTo
Nov 2016CitigroupInitiates Coverage OnBuy
Oct 2016JP MorganUpgradesNeutralOverweight
Oct 2016BernsteinInitiates Coverage OnOutperform

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