Southwest Airlines Earnings Preview

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Southwest Airlines (NYS: LUV) came in under analyst's estimates last quarter, but now has a chance to fix things this quarter. The company will unveil its latest earnings on Thursday, Oct. 20. Southwest Airlines is a passenger airline that provides air transportation in the United States.

What analysts say:

  • Buy, sell, or hold?: Analysts think investors should stand pat on Southwest Airlines with eight of 15 analysts rating it hold. Analysts don't like Southwest Airlines as much as competitor United Continental Holdings overall. Of 13 analysts, all of them rate United Continental Holdings a buy compared to seven of 15 for Southwest Airlines.
  • Revenue forecasts: On average, analysts predict $4.23 billion in revenue this quarter. That would represent a rise of 32.6% from the year-ago quarter.
  • Wall Street earnings expectations: The average analyst estimate is earnings of $0.13 per share. Estimates range from $0.11 to $0.16.

What our community says:
CAPS All-Stars are solidly backing the stock with 88.6% granting it an "outperform" rating. The community at large agrees with the All-Stars with 86.1% awarding it a rating of "outperform." Fools are bullish on Southwest Airlines and haven't been shy with their opinions lately, logging 713 posts in the past 30 days. Despite the majority sentiment in favor of Southwest Airlines, the stock has a middling CAPS rating of three out of five stars.

Management:
Southwest Airlines' gross margin shrank by 8.3 percentage points in the last quarter. Revenue rose 30.6% while cost of sales rose 50.7% to $2.57 billion from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The following table shows gross, operating, and net margins over the past four quarters.

Quarter

Q2

Q1

Q4

Q3

Gross Margin

37.9%

39.4%

58.5%

61.4%

Operating Margin

6.4%

3.7%

22.7%

27.0%

Net Margin

3.9%

0.2%

4.2%

6.4%

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Motley Fool newsletter services have recommended buying shares of Southwest Airlines.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

At the time this article was published

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