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Earnings ESP

Transportation on a Roll: Three Stocks to Beat this Q2
 
The transportation sector had witnessed a modest first quarter of 2014 owing to the sever winter. However, the second quarter is expected to recover from the polar vortex with better results. Operational activities have started picking up, and market demand remains consistent with an uptick in manufacturing activity. As a result, it is quite likely that transportation companies will register a rebound, albeit at a slower rate, given the impact of escalating tension in Iraq and a tepid U.S. GDP growth outlook.
 
Earnings So Far
 
The second-quarter earnings season has just begun. Within the transportation sector, so far, only 9.1% of the participants have reported their earnings. With average earnings growth of 7.5% and revenue growth of 3.5%, these stocks have recorded fairly good financial numbers, which reflects a positive momentum going ahead for the transportation companies.
 
With the earnings season on the roll, it offers a golden opportunity to zero in on a handful of transportation stocks that seem confident of beating earnings estimates in their upcoming announcements. Notably, an earnings surprise should help these stocks outperform in the near term.
 
How to Pick the Right Stocks?
 
Stock diversity in the transportation domain could muddle up your picking power. An easy way to narrow down choices is to take a look at stocks with a solid Zacks Rank and a favorable Earnings ESP.
 
Earnings ESP is our proprietary methodology for determining stocks that have high chances of surprising with their next earnings announcements. An Earnings ESP reflects the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
 
The combination of a favorable Zacks Rank – #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive earnings ESP, is usually a harbinger of an earnings beat and a near-sure formula for success in this risk-ridden macro economy.
 
For investors seeking to benefit by applying this strategy to their portfolio, we present three transportation stocks that have the right combination of elements to beat earnings this quarter.
 
Southwest Airlines Co. (LUV - Analyst Report): Dallas-based Southwest Airlines provides low cost passenger air transportation services. It primarily provides short-haul, high frequency, point-to-point airline services covering many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore/Washington International, Burbank, Manchester, Oakland and San Jose. Of late, it has also started flying into international territory, with flights to the Caribbean Islands.

The Zacks Consensus Estimate for earnings in the second quarter is pegged at 59 cents per share, representing 55.9% growth over the year-ago quarter. The company has registered an average earnings surprise of 8.5% over the trailing 12 months. 

The company presently carries a Zacks Rank #1 and has an earnings ESP of +3.39%. Southwest Airlines is set to report its second quarter results on Jul 24, before the opening bell.

Norfolk Southern Corporation (NSC - Analyst Report): Headquartered in Norfolk, VA, Norfolk Southern Corp. owns a major freight railroad – Norfolk Southern Railway – which also represents a Class I railroad in the U.S. The company operates over 20,000 route miles across 22 Eastern states in the U.S. Norfolk Southern offers rail transportation of commodities like coal and other raw materials, intermediate products and finished goods. It also offers comprehensive logistics and extensive intermodal services in the eastern part of the U.S. and caters to overseas freight through several Atlantic and Gulf Coast ports.

The Zacks Consensus Estimate for the second quarter is $1.73. This represents a year-over-year improvement of 18.4%. The company has delivered average earnings surprise of 4.8% over the trailing 12 months.

Norfolk Southern has an earnings ESP of +0.58% and retains a Zacks Rank #2. The company is slated to release its second quarter results on Jul 23.
 
Union Pacific Corporation (UNP - Analyst Report): Based in Omaha, NE, Union Pacific Corporation (UNP - Analyst Report) provides rail transportation services across 23 states in the U.S. through its principal operating company, Union Pacific Railroad Company. As the largest railroad company in North America, Union Pacific connects the Pacific and Gulf Coast ports with the Midwest and eastern United States gateways. The company also connects with Canada's rail systems and is the only railroad serving all the six major gateways to Mexico.

Currently, the Zacks Consensus Estimate for Union Pacific’s second quarter earnings is $1.41 with growth expectation of 19.4% over the prior-year quarter. The company boasts an average earnings surprise of 1.2% over the trailing 12 months.

Union Pacific currently holds a Zacks Rank #2 and has an earnings ESP of +0.71%. The company is slated to report its second quarter financial results on Jul 24, before market opens.
 
What Lies Ahead?
Conscious efforts to turn around are evident in the economy at large. While the transportation sector is banking upon palpable improvements in the fundamentals of airline and railroad stocks, we believe this is the right time to invest in the potential winners in the sector.

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UNITED THER… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%