Expect An Earnings Beat For Southwest In The 4Q

Southwest Airlines (NYSE:LUV)  reports earnings on 24^th January. We expect Southwest to show an improvement year on year, as it reports its fourth quarter earnings. The quarterly result is expected to see an increase of 3% for revenue per available passenger miles, and an increase of 5% for available seat miles. With increased passenger flow during the quarter, the airline should report an expectation beat.  Revenues are expected to come in at $5.6 billion,  7.3% higher year over year, and earnings per share are expected to come in at $1.05, a 36% increase year over year.

Our price estimate for Southwest Airlines is $61 per share, which is higher than its market price. View our interactive dashboard for  Southwest Q4 2018 and modify the key drivers to visualize the impact on the company’s price estimate.

In the current quarter Southwest hit multi-year lows, on revenue and margin concerns. The quarterly results will be an acid test for the company, to see if the management’s strategy to turn the company around, has been successful. With expectations of earnings per share to come in much higher year over year, the stock is trading at a valuation that is relatively cheap, in comparison to its historical valuations.

The management has been dealing with unprofitable routes, and high operational costs. Some of those issues are expected to be alleviated, as the price of oil fell during the quarter. Concerns about the management’s inability to make substantive changes, during the quarter, and throughout the year, has weighed on the stock. Going into the fourth quarter results, we do expect a beat, in earnings and this should help the stock move to the upside.