Will Southwest Airlines (LUV) Beat Earnings Estimates in Q2?

Southwest Airlines Co. LUV is slated to report its second-quarter 2014 results on July 24, before the market opens. Last quarter, the company had delivered a 12.50% positive earnings surprise. Let's see how things are shaping up prior to this announcement.

Factors Influencing Results this Quarter

After operating for several decades within the U.S. domestic market, Southwest Airlines has finally spread its wings into the international territory with flights to the Caribbean. The carrier also plans to expand its international service to Mexico and Dominican Republic, going forward. Additionally, the company reported traffic growth for each month in the course of the second quarter, thus reiterating our bullish stance.

The carrier also remains optimistic about its second quarter PRASM (passenger revenue per available seat miles) and expects it to grow by 8%. The slot wins at the LaGuardia (LGA) airport in New York and at Reagan National Airport DCA in Washington, D.C. has widened Southwest Airlines' scope for expansion. However, an upward trend in jet fuel price can affect the company's performance moving ahead.

Earnings Whispers?

Our proven model does not conclusively show that Southwest Airlines is likely to beat earnings. 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: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 0.00% for Southwest Airlines.

Zacks Rank: Southwest Airlines carries a Zacks Rank #1 which increases the predictive power of ESP. But when combined with ESP of 0.00%, it makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Other Stocks to Consider

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

Allegiant Travel Group Inc. ALGT, with earnings ESP of +6.40% and a Zacks Rank #1.

American Airlines Group Inc. AAL with earnings ESP of +1.56% and a Zacks Rank #1.

Alaska Air Group Inc. ALK, with earnings ESP of +0.92% and a Zacks Rank #1.