United Continental Holdings, Inc. (UAL) is slated to report its second-quarter 2014 financial numbers on July 24, before the opening bell.
In the previous quarter, United Continental Holdings’ earnings beat the Zacks Consensus Estimate by a margin of 3.6%. Moreover, the company has surpassed the Zacks Consensus Estimate in three of the past four quarters, with an average earnings beat of 2.79%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that United Continental Holdings is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.37%. This is because the Most Accurate estimate stands at $2.22, whereas the Zacks Consensus Estimate is pegged at $2.19. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: United Continental Holdings currently has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of United Continental Holdings’ Zacks Rank #2 and +1.37% ESP makes us reasonably confident of a positive earnings beat on July 24.
What is Driving the Better-than-Expected Earnings?
We expect impressive performance from United Continental Holdings in the second quarter, propelled by a solid show in the Pacific and domestic markets, which will likely improve its second quarter revenue per mile figure. The company expects per mile revenue figure to rise 3.5% year over year during the second quarter, which betters its previous guidance of growth of 1–3%. Further, cost per mile (excluding fuel) is also expected to remain flat compared to the previous guidance which had estimated higher year-over-year costs.
During the first half of 2014, United Continental Holdings has generated Revenue Passenger Miles (RPMs) of 100.28 billion (up 0.2% year over year) and Available Seat Miles (ASMs) of 100.43 billion (down 0.2% year over year) leading to a load factor of 83.3% (up 30 basis points).
United Continental Holdings is focusing on augmentation of ancillary revenues by $700 million to $3.5 billion by 2017 and expects to reach $3 billion by the end of 2014. The carrier hopes to achieve this by offering new products to customers and increasing fees on the current ones. In this regard, it continues to study a passenger’s destinations, travel pattern and prior purchases to provide appropriate ancillary products.
Other Stocks to Consider
Here are other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
Southwest Airlines Co. (LUV) has an earnings ESP of +3.39% and sports a Zacks Rank #1.
American Airlines Group Inc. (AAL) has an earnings ESP of +1.56% and carries a Zacks Rank #1.
Alaska Air Group, Inc. (ALK) has an earnings ESP of +0.92% and sports a Zacks Rank #1.
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