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Transport ETFs to Buy on Solid Q4 Earnings

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The fourth-quarter earnings picture for the transportation sector has been robust. This is especially true as earnings of 95.2% of the market capitalization of the sector that has reported so far are up 3435.7% on 38.6% revenue growth. In fact, transportation is the biggest driver of Q4 earnings growth so far and is reflective of recovering economy, backed by the increased pace of vaccinations, business reopening, and growing consumer confidence. A strong holiday season has added further fuel to transportation.

Despite the strong earnings, the sector has been caught in a broad market sell-off this year. As such, iShares U.S. Transportation ETF (IYT - Free Report) , SPDR S&P Transportation ETF (XTN - Free Report) and First Trust Nasdaq Transportation ETF (FTXR - Free Report) are down 4.9%, 6.7% and 9.8%, respectively. The dips seem to be a solid buying opportunity, given that these products currently have a Zacks ETF Rank #2 (Buy), suggesting their outperformance in the months ahead (see: all the Industrials ETFs here).

For a better understanding, let’s delve into the results of some well-known industry players:

Transportation Earnings in Brief

The world's largest package delivery company United Parcel Service (UPS - Free Report) topped estimates on both revenues and earnings. Earnings of $3.59 per share were 48 cents ahead of the consensus mark and the top line of $27.8 billion came in above the estimated $27.2 billion.

Major railroads Union Pacific (UNP - Free Report) and Norfolk Southern Corp (NSC - Free Report) also came up with better-than-expected earnings. Union Pacific outpaced the consensus earnings estimate by 6 cents and the revenue estimate by $186 million. Norfolk topped the earnings estimate by 8 cents and the revenue estimate by $62 million.

U.S. airlines Delta Air Lines (DAL - Free Report) and United Continental (UAL - Free Report) delivered better-than-expected results. Delta reported earnings per share of 22 cents, beating the Zacks Consensus Estimate of 15 cents per share. Revenues of $9.47 billion topped the consensus mark of $9.23 billion. United Continental posted a loss of $1.60 per share, narrower than the Zacks Consensus Estimate of a loss of $2.23. Revenues of $8.19 billion came in above the estimated $8 billion (read: 5 ETFs to Tap the Four-Decade Strongest U.S. Economy).

Last but not the least, leading trucking carrier J.B. Hunt (JBHT - Free Report) beat the estimate for earnings by 29 cents per share and for revenues by $209 million.

ETFs in Focus

iShares U.S. Transportation ETF (IYT - Free Report)

iShares U.S. Transportation ETF tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 50 securities. The in-focus six firms make up for a combined 48.2% share. From a sector perspective, railroads, and air freight & logistics take the largest share at 31.8% and 31.4%, respectively, while trucking and airlines round off the next two spots with double-digit exposure each.

iShares U.S. Transportation ETF has accumulated $1.6 billion in its asset base and sees a solid trading volume of around 197,000 shares a day. It charges 41 bps in annual fees.

SPDR S&P Transportation ETF (IYT - Free Report)

SPDR S&P Transportation ETF tracks the S&P Transportation Select Industry Index, holding 50 stocks in its basket. The in-focus firms account for around 2% share each. About 34% of the portfolio is dominated by trucking while airlines, and air freight & logistics take at least 30.6% and 18.7% share, respectively (read: 5 Stocks in S&P 500 ETF That Gained Double Digits in January).

With AUM of $814.9 million, SPDR S&P Transportation ETF charges 35 bps in fees per year from its investors and trades in a volume of around 102,000 shares a day.

First Trust Nasdaq Transportation ETF (FTXR - Free Report)

First Trust Nasdaq Transportation ETF offers exposure to the 29 most-liquid U.S. transportation securities based on volatility, value and growth by tracking the Nasdaq US Smart Transportation Index. The in-focus six firms represent a combined 24.3% share. Railroads, trucking, automobiles and airlines are the top sectors accounting for double-digit exposure each.

First Trust Nasdaq Transportation ETF has amassed $1.2 billion in its asset base and charges 60 bps in annual fees. The average trading volume is a modest 141,000 shares.

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