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Virgin America (VA) Q3 Earnings: Disappointment in Store?

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Low-cost carrier Virgin America Inc. is scheduled to report third-quarter 2016 earnings on Nov 2.

In the second quarter of 2016, the company had reported lower-than-expected earnings per share. The company underperformed in spite of low fuel costs which should have boosted the bottom line. Quarterly revenues of $426 million also missed the Zacks Consensus Estimate of $447 million. However, on a year-over-year basis, revenues improved 3.6%.

Things appear to be bleak even this time around as our quantitative model doesn’t hint at an earnings beat. Here’s why:

Virgin America doesn’t have the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Virgin America is -1.00%. This is because the Most Accurate estimate of 99 cents is below the Zacks Consensus Estimate by a penny.

Zacks Rank: Virgin America carries a Zacks Rank #5 (Strong Sell). Please note that we caution against Sell-rated stocks going into the earnings announcement, especially when the company is witnessing negative earnings estimate revisions. The third quarter Zacks Consensus Estimate for Virgin America has gone down by 15 cents to $1.00 over the last three months.

VIRGIN AMERICA Price and EPS Surprise

 

VIRGIN AMERICA Price and EPS Surprise | VIRGIN AMERICA Quote

Looking at the fundamentals, here are the factors that should be at play:

More than the earnings numbers, investors await updates on the impending acquisition of Virgin America by Alaska Air Group (ALK - Free Report) . The deal, worth approximately $4 billion inclusive of debt and capitalized aircraft operating leases, was inked in Apr 2016. According to various media reports, the deal, expected to close by the end of this year, has run into rough weather. In view of the uncertainty, updates on the progress of the deal would be highly awaited.

Apart from updates on the merger, focus will remain on passenger revenue per available seat mile (PRASM – a key measure of unit revenue) as Virgin America, like most other carriers such as Southwest Airlines Co. (LUV - Free Report) , is struggling with respect to unit revenues. The metric had declined 9% in the second quarter.

A Stock to Consider

With Virgin America likely to disappoint, we present below a transportation stock likely to beat the Zacks Consensus Estimate this earnings season, as per our quantitative model.

Navios Maritime Holdings Inc. , which is expected to report third-quarter earnings on Nov 28, has an Earnings ESP of +16.00% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

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