Southwest Airlines Prepares for Earnings Report Amid Mixed Expectations
Southwest Airlines (NYSE:LUV) is set to announce its earnings report on Thursday, April 24, 2025. The airline currently boasts a market capitalization of $15 billion. In the past twelve months, Southwest reported revenues of $27 billion, with operational profits of $321 million and a net income of $465 million.
Anticipated Losses in Upcoming Report
Looking forward to the upcoming report, consensus estimates predict a loss of $0.19 per share on $6.4 billion in sales. This reflects an improvement compared to a loss of $0.36 per share and $6.33 billion in sales for the same period last year.
Strategies for Event-Driven Traders
For traders focusing on event-driven strategies, analyzing historical post-earnings stock reactions is essential, regardless of the immediate impact of results on stock prices. Here are two potential strategies:
- Pre-earnings Positioning: By analyzing historical data, traders can assess various post-earnings scenarios and position themselves strategically before the announcement.
- Post-earnings Trading: Alternatively, traders can examine the correlation between immediate and medium-term returns following previous earnings releases, initiating trades one day after the announcement.
Historically, Southwest Airlines has experienced a negative return on the day after earnings releases 70% of the time over the last five years. The median negative return during these instances has been -2.7%, with the largest single-day negative return hitting -8.9%.
Image by F. Muhammad from Pixabay
Historical Rates of Positive Post-Earnings Returns
Observations regarding one-day (1D) post-earnings returns indicate the following:
- Over the past five years, 20 earnings data points were recorded, with 6 positive and 14 negative returns. Positive returns occurred approximately 30% of the time.
- This percentage declines to 25% when considering only the last three years.
- The median of the 6 positive returns is 2.4%, while the median of the 14 negative returns is -2.7%.
Further data on 5-Day (5D) and 21-Day (21D) returns post-earnings is summarized in the table below.
LUV 1D, 5D, and 21D post earnings return
Analyzing Correlations of Historical Returns
A less risky trading strategy involves understanding the correlation between short-term and medium-term returns following earnings. By identifying the strongest correlation, traders can make informed decisions. For instance, if 1D and 5D returns positively correlate, a trader might adopt a long position for the next five days following a positive 1D post-earnings return. Below is some correlation data gathered from both 5-year and 3-year (more recent) history.
LUV Correlation Between 1D, 5D and 21D Historical Returns
Peer Earnings Influence on Stock Reaction
Peer performance can impact post-earnings stock reactions. Market pricing may start to reflect expectations prior to the earnings announcement. Below is historical data showing Southwest Airlines’ stock performance compared to peers that reported earnings shortly before Southwest. The performance of peer stocks also represents post-earnings one-day (1D) returns.
LUV Correlation With Peer earnings
Conclusion on Wealth Management Strategies
Trefis employs systematic portfolio strategies that integrate risk control through quality investments and active hedging. Investors interested in these strategies should seek further information about Trefis or Empirical Asset Management.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
