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Allegiant Travel (ALGT) Q1 Earnings: Is Disappointment in Store?


Allegiant Travel Company ALGT is scheduled to report its first-quarter 2017 results on Apr 25, after market closes.

In the fourth quarter of 2016, the company’s earnings of $2.48 beat the Zacks Consensus Estimate by 8 cents. Quarterly revenues increased 8% year over year to $336 million and also surpassed the Zacks Consensus Estimate of $334 million. Network growth boosted results.

However, things might not be so rosy for the company in the first quarter. The negative sentiment surrounding the stock can be gauged from the fact that the Zacks Consensus Estimate for the first quarter has decreased 4.3% over the last seven days.

In fact, the Allegiant Travel stock has struggled of late, underperforming the Zacks categorized Transportation-Airline industry in the last three months. The stock was down 8.7% as against the industry’s gain of 3.8%.

What Does Our Model Indicate?

Our quantitative model too does not show conclusively that Allegiant Travel will beat earnings in the first quarter of 2017. According to our proven model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase the odds of an earnings surprise. However, that is not the case as highlighted below.

Zacks ESP: Allegiant Travel has an Earnings ESP of -2.27%. This is because the Most Accurate estimate is 6 cents, below the Zacks Consensus Estimate of $2.64 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allegiant Travel carriesa Zacks Rank #3 which increases the predictive power of ESP. However, the company’s -2.27% ESP complicates our surprise prediction.

Note that we caution against stocks with Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Factors Likely at Play

We expect the company’s bottom line in the first quarter of 2017 to be hurt by increased labor costs. Higher fuel costs (projected at $1.81 per gallon in the first quarter) are also expected to limit bottom line growth. But cost per available seat mile excluding fuel is projected to increase in the band of 11.6% to 12%.

The shift of Easter into April is expected to hurt the top line in the quarter. The company expects total revenue per available seat mile (TRASM) to decline in the range of 4.4% to 4.8% in the first quarter. However, traffic (total system) for the first quarter is projected to increase 7.5%, that compares unfavorably to the increase of 10.9% in the fourth quarter of 2016. Load factor (percentage of seats filled by passengers) is projected to decline 380 basis points (bps) in the first quarter, which too is worse than the 170 bps reduction witnessed in the fourth quarter of 2016.

We are however impressed by the company’s efforts to expand and are also encouraged by its efforts to reward shareholders.

Stocks to Consider

Investors interested in the transportation space may consider the following stocks. This is because our model shows that these companies too possess the right combination of elements to post an earnings beat this quarter.

American Airlines Group AAL has an Earnings ESP of +7.55% and a Zacks Rank #3. The company will report first-quarter results on Apr 27.

Air Lease AL has an Earnings ESP of +1.16% and a Zacks Rank #3. The company will report first-quarter results on May 4. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

C.H. Robinson CHRW has an Earnings ESP of +2.50% and a Zacks Rank #3. The company will report first-quarter results on Apr 25.

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