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5 Transportation Stocks Set to Outride Q1 Earnings Estimates

Maharathi Basu
Bear of the Day: CAI International (CAI)

The Zacks Transportation Sector is widely diversified in nature. It houses airlines, railroads, shipping and trucking companies to name a few.

Delta Air Lines DAL was the first major transportation company to report Q1 numbers on Apr 10. The airline heavyweight not only outperformed with respect to earnings per share and revenues, but also issued an upbeat view for Q2.

Other notable S&P 500 transports scheduled to report this week include another airline major United Continental Holdings UAL and key railroads CSX Corporation CSX, Union Pacific Corporation UNP and Kansas City Southern KSU.

According to the latest Earnings Preview, total earnings of transports belonging to the S&P 500 universe are projected to decrease 1.6% year over year in the quarter to be reported. Let’s unearth the factors likely to influence the Q1 earnings performance of sector participants.

Oil Price

It is known to all that costs associated with oil are considered major inputs for any transportation company. A rise in oil price leads to a sharp increase in operating expenses of the sector participants, which in turn implies that the health of these stocks is inversely related to fuel cost.

Transports were not well served in this respect as oil prices increased 32.4% in the Q1 period (January-March). The increase was in fact the most for the commodity in a quarter since the second quarter of 2009. The gloomy earnings projection for transports in Q1 per our report can largely be attributed to the rise in oil price.

Other Factors

Apart from the surge in oil prices, one has to be mindful of issues like factors like high labor costs and driver shortage, which might limit bottom-line growth for transports in Q1.

Results of railroads on the other hand are likely to be hurt by sluggish freight shipments. In fact, according to the latest Cass Freight Shipments Index report, North American freight shipments declined in each of the three months of Q1. However, railroads are likely to see an improvement in their operating ratios (operating expenses as a percentage of revenues) in this reporting cycle. Additionally, intermodal revenues are likely to be strong, thereby aiding railroads’ top lines and mitigating the negative impact of sluggish freight revenues.

Moreover, with the U.S. economy remaining strong and air fares still moderate, demand for air travel is impressive and likely to aid the top line of airlines — an integral part of the sector. The boom in domestic economy is asserted by the S&P 500 Index’s 13.1% rise in the January-March period, which marked its best start to a year since 1998. Other major bourses, including the Dow Jones Industrial Average and Nasdaq Composite surged more than 11%.

The above tailwinds are reflected in our Earnings Preview report which hints at a 4.4% year-over-year rise in revenues for transports in Q1.

How to Pick Winners?

The above writeup clearly suggests that despite some hiccups, there are quite a few positive for transports which might brighten their Q1 earnings picture.

However, given the existence of a number of industry players, finding the right transportation bets with potential to beat on earnings can be a daunting task. This is where the Zacks methodology proves its mettle.

Our research shows that stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have maximum chances — as high as 70% — of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Choices

Based on the above methodology, we have zeroed in on five transportation stocks that are likely to surpass the Zacks Consensus Estimate for earnings this season.

United Continental Holdings, based in Chicago, operates an average of nearly 5,000 flights a day to multiple destinations. The Zacks Consensus Estimate for first-quarter earnings has been revised 62.1% upward in the last 90 days. United Continental has an Earnings ESP of +2.97% and a Zacks Rank #3.  United Continental is scheduled to report on Apr 16. Youcan see the complete list of today’s Zacks #1 Rank stocks here.

CSX Corporation is a premier transportation company providing rail, intermodal and rail-to-truck trans-load services and solutions. The stock carries a Zacks Rank #3 and has an Earnings ESP of +2.97%. CSX is scheduled to report on Apr 16.

C.H. Robinson Worldwide CHRW provides freight transportation services and logistics solutions to companies across a host of industries. The stock carries a Zacks Rank #3 and has an Earnings ESP of +0.22%. The Zacks Consensus Estimate for first-quarter earnings has been revised 1.8% upward in the last 90 days. C.H. Robinson is scheduled to report on Apr 30.

Werner Enterprises WERN is a transportation and logistics company headquartered in Omaha, NE. The stock carries a Zacks Rank #3 and has an Earnings ESP of +2.06%. Werner Enterprises is scheduled to report on Apr 25.

JetBlue Airways Corporation JBLU, based in Long Island City, New York, is a low-cost airline company. It transports more than 32 million customers annually to multiple cities in the U.S., Caribbean and Latin America. The stock carries a Zacks Rank #3 and has an Earnings ESP of +5.80%. The Zacks Consensus Estimate for first-quarter earnings has been revised 9.1% upward in the last 30 days. JetBlueis scheduled to report on Apr 23.

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
 
United Continental Holdings, Inc. (UAL) : Free Stock Analysis Report
 
Kansas City Southern (KSU) : Free Stock Analysis Report
 
Union Pacific Corporation (UNP) : Free Stock Analysis Report
 
CSX Corporation (CSX) : Free Stock Analysis Report
 
C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
 
Werner Enterprises, Inc. (WERN) : Free Stock Analysis Report
 
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