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3 Transportation Stocks Gear Up for Q4 Beat
The global markets tumbled earlier this week on a weak manufacturing sector report from ISM and poor Chinese economic data. But data on Markit's Eurozone Composite Purchasing Managers' Index and a positive expectation from the U.S. job report has once again set the markets rolling. A decline in the U.S. unemployment insurance application and claims for U.S. state unemployment benefits definitely have a positive bearing on the U.S. markets. In addition, the global markets also look strong with Asian and European indices showing recoveries from their recent slump.
We expect the ongoing fourth quarter earnings season to benefit from this broader optimism. The Transportation sector, which has already shown outperformance so far, remains one of our favorites, with expected strong results by some of its stocks. Not only do we see the current macroeconomic momentum working in favor of these stocks, but also find continued improvement in industry fundamentals benefiting them.
Earnings Picture Looks Bright
Around 90.9% of the companies in the transportation sector have reported their fourth quarter results so far with most registering positive earnings surprise. The sector’s year-over-year earnings growth so far has been 16.2%, up from 13.2% in the prior quarter.
Improved airline profitability on growing air travel demand, disciplined capacity and many new and enhanced ancillary revenue streams lent most of the support to the quarter’s growth. Better numbers from freight railroad carriers and other logistic companies on favorable market fundamentals, robust demand and high shipping rates contributed no less.
The backdrop looks perfect to zero-in on a handful of sector stocks that seem confident of beating earnings estimates in their upcoming announcement. An earnings surprise should also help these stocks outperform in the near term.
An Easy Way to Find the Best Stocks
Stock diversity in the Business Services arena could muddle up your picking power. An easy way to narrow down the list for your portfolio is to take a look at stocks with solid Zacks Rank and favorable Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for determining stocks having high chances of surprising with their next earnings announcement. The Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
The combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive earnings ESP, is usually a harbinger of earnings beat and formula for success in this risk-ridden macro economy.
For investors seeking to benefit by applying this strategy to their portfolio, we have chosen three transportation stocks that hold significant upward potential this earnings season.
Copa Holdings SA (CPA - Snapshot Report)
Panama-based, Copa Holdings SA provides passenger and cargo airline services through its operating subsidiaries Copa Airlines and Copa Airlines Colombia. The carrier has strategic alliances with United Continental Holdings, Inc. (UAL) and serves 66 destinations across 29 countries in North, Central and South America and the Caribbean. The carrier boasts one of the youngest fleet of 90 aircraft that comprise 64 Boeing 737NG and 26 EMBRAER-190s.
The Zacks Consensus Estimate for Copa Holdings’ fourth quarter earnings is pegged at $2.53, representing a robust 25.9% year-over-year growth. The company registered an average positive earnings surprise of 4.5% over the trailing four quarters.
The company presently carries a Zacks Rank #2 and has an earnings ESP of +3.95%. Copa Holdings is set to report its fourth quarter results on Feb 12, after the market closes.
Spirit Airlines, Inc. (SAVE - Snapshot Report)
Headquartered in Miramar, Florida, Spirit Airlines operates as a low cost airline covering 50 destinations in the U.S., Latin America and Caribbean. As of Sep 30, 2013, the company operated 250 daily flights and had a fleet of 51 aircraft with 29 Airbus A319, 20 A320, and two A321.
Currently, the Zacks Consensus Estimate for Spirit Airlines’ fourth quarter earnings is 46 cents with growth expectation of 68.9% from the prior-year quarter. The company boasts an average positive earnings surprise of 11.4% over the trailing four quarters.
Spirit Airlines currently holds a Zacks Rank #2 and has an earnings ESP of +2.17%. The carrier is slated to report its fourth quarter financial results on Feb 19, before the market opens.
Trinity Industries Inc. (TRN - Snapshot Report)
Initially established as Trinity Steel, Trinity Industries Inc. is a U.S. based conglomerate, which offer a variety of services and operates primarily through five business segments. These are namely, Rail Group, Construction Products Group, Construction Products Group, Energy Equipment Group, and Railcar Leasing and Management Services Group.
The Zacks Consensus Estimate for Trinity Industries’ fourth quarter earnings is $1.41. This represents an earnings growth of 56.8% on a year-over-year basis. The company delivered average positive earnings surprise of 10.8% over the trailing four quarters.
Trinity Industries has an earnings ESP of +2.13% and carries a Zacks Rank #1. The company will report its earnings on Feb 19, after the market closes.
We expect the positive wave in the transportation industry to continue and uplift the stock prices of the sector participants. So this is the right time to invest in the potential winners of the sector.
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