Filed Under:
Tickers in this Article: LUV, BAX, CAL
At certain times of the year there is an influx of information on companies and their stocks. There is always news coming out on the many companies, but this particular time is referred to as earnings season. The news covers everything from earnings to future prospects of the company. To profit in the volatile markets we must watch the earnings and what the company says about the future prospects for the company and the economy going forward. It is interesting to see how shares trade in the first hour of trading on days like this, and it could help determine if it is a good potential investment opportunity. (To begin with the basics, check out Strategies For Quarterly Earnings Season.)

Today we'll take a closer look at the earnings releases and market reaction for: Southwest Airlines (NYSE:LUV), Baxter International (NYSE:BAX) and Continental Airlines (NYSE:CAL).

Southwest Airlines Posts a Loss
For the first time in 17 years Southwest has reported its first quarterly loss. Most of the loss was related to the write down of $247 million because of fuel hedging contracts that became losses when the price of fuel fell dramatically. When you take out the one-time charge the company earned 9 cents per share compared with the consensus estimate of 7 cents per share according to Thompson Reuters. Revenue beat analyst forecasts of $2.83 billion by coming in at $2.89 billion. Revenue was up from last year's $2.59 billion. Also the airline reported that it will start flights to Minneapolis in a time when many other carries are canceling flights.

What all of this tell us is that in the face of many challenges Southwest is still continuing to push forward. Yes, it did have a one-time write off related to fuel hedging; however, when you take the write off out of the results the company is continuing to deliver stronger than expected earnings in a challenging economic environment. Shares of Southwest were at $11.79, up 23 cents within the first hour of trading and closed the day up 94 cents at $12.50

Baxter Continues to Outperform
Baxter reported better than expected net income for its third quarter of 2008. The company reported earnings per share of 88 cents compared with analysts' estimates of 82 cents a share, according to First Call consensus. Baxter also raised its earnings outlook for 2008 to between $3.35 per share and $3.37 a share; this compared to consensus estimates of $3.30. What this tells us is that the company is continuing to grow and remain profitable in a challenging economic environment. I feel it's only a matter of time until investors are rewarded for this better-than-expected growth. Shares of Baxter were at $56.14 down $2.44 within the first hour of trading and closed the day up 81 cents at $59.39. (Why do some stocks drop even after good news? Read Can Good News Be A Signal To Sell?)

Continental Airlines Facing Challenges
On Thursday, Continental reported revenue of -$236 million or -$2.14 a share. Analysts were expecting revenue of $4.12 billion or -$1.49 a share. Compared with Southwest this carrier is worse shape with $3.9 billion in cash and $5.79 billion in debt. Southwest, on the other hand, has $5.8 billion in cash and $2.66 billion in debt. What the recent earnings say about both carriers is that, while financially sound, they are facing the challenges of high fuel prices and a slowing economy. That said both of these carriers have enough cash and low enough debt to overcome their challenges. Shares of Continental were at $12.74 down 10 cents within the first hour of trading and closed the day up $2.91 at $15.75

Bottom Line
News events can have a major impact on the price of the stock up or down. During these events the company will give us clues as to how business is doing, what they think the overall economic conditions are like, and what potential impact these events will have on them. However, it is important to see how shares are trading within the first hour of trading to understand how the markets are viewing the news.

comments powered by Disqus

Trading Center