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What’s in Store for United Continental (UAL) in Q2 Earnings?


United Continental Holdings, Inc. UAL is scheduled to report its second-quarter earnings on Jul 18, after market closes. Last quarter, the company delivered a positive earnings surprise of 10.81%. Let’s see how things are shaping up for this announcement.

Factors at play

The carrier is leaving no stone unturned to rebound from the infamous passenger dragging incident in April. In fact, the company has also changed its policy on crew-booking and announced 10 measures like limiting the use of law enforcement for safety and security issues, to improve the flying experience of travellers and avoid repetition of the incident.

Moreover, improving unit revenue trends should aid results in the quarter. The company expects passenger unit revenues for the to-be-reported quarter to increase approximately 2% on a year-over-year basis (which is at the midpoint of the previously guided range of 1% to 3%). Pre-tax margin (adjusted) is also projected in the band of 12.5% to 13.5%.

United Continental expects consolidated capacity for the quarter to grow 4.2% on a year-over-year basis. Notably, the company’s efforts to reward its shareholders are also encouraging.

However, high costs are likely to hurt the bottom line in the to-be-reported quarter. With the company inking multiple labor deals, related costs have shot up. Second-quarter cost per available seat mile (CASM: excluding profit sharing, fuel & third party business cost) is anticipated to increase in the band of 3%–3.5% on higher labor costs.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for United Continental 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 at least 3 (Hold) for this to happen.

Unfortunately, this is not the case here as elaborated below.

Zacks ESP: United Continental has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $2.23 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: United Continental sports a Zacks Rank #1 which increases the predictive power of ESP. However, the company’s 0.00% ESP complicates our surprise prediction.

Note that we caution against stocks with Zacks Ranks #4 or 5 (Sell-rated) going into an earnings announcement.

Stocks to Consider

Investors interested in the airline space may consider stocks like American Airlines Group, Inc. AAL, Allegiant Travel Company ALGT and Alaska Air Group, Inc. ALK, as our model shows that these stocks possess the right combination of elements to post an earnings beat in their next release.

American Airlines has an Earnings ESP of +4.62% and a Zacks Rank #1. The company is expected to release its second-quarter results on Jul 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allegiant Travel has an Earnings ESP of +5.25% and a Zacks Rank #3. The company will release its second-quarter results on Jul 26.

Alaska Air Group has an Earnings ESP of +2.44% and a Zacks Rank #2. The company will announce its second-quarter results on Jul 26.

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