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3 Transportation Stocks That May Overtake the Market in 2023
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The Zacks Transportation sector has been unfavorably affected by headwinds like increasing fuel costs and supply-chain woes. With oil price moving north, fuel costs flared up significantly, hurting the bottom-line performance of transportation stocks. This is because fuel expenses represent one of the major input costs for transportation players.
Supply-chain woes have also resulted in elevated costs. Also, staff shortages led to multiple flight cancellations, affecting profitability in turn.
Due to the abovementioned headwinds, the sector has declined 16.5% year to date.
Image Source: Zacks Investment Research
However, we would like to remind investors that despite the challenges there are multiple reasons to continue investing in the transportation sector.
How Will 2023 Shape Up for Transportation Companies?
The transportation sector, being widely diversified in nature, includes airlines, railroads, package delivery companies and truckers to name a few. Relaxation of COVID-19 travel restrictions and re-opening of the global economy have benefited transportation companies this year and are expected to do so in 2023 also.
Airline stocks are benefiting from a solid recovery in air-travel demand as people are again booking flights, leading to higher passenger revenues, which contribute to the bulk of most airlines’ top lines.
Given the upside in economic activities, freight demand continues to be strong despite minor hiccups. This supports growth of railroad operators and transportation service providers. The Cass Freight shipments Index improved 2.9% year over year in October. The overall improving trend is evident from the fact that the measure has improved year over year in six (February, March, July, August, September and October) of the 10 months reported so far this year. We expect this trend to continue in 2023.
Online shopping continues to gain despite the reopening of the normal market. This continued strength in e-commerce demand bodes well for packaging companies in the sector.
Due to increased demand, the financial health of transportation companies has improved this year. As a result, we have seen many companies in the space hiking dividends. Dividend stocks are safe bets for creating wealth, as the payouts generally act as a hedge against economic uncertainty. Investors are always on the lookout for dividend stocks as these provide a steady source of income and a cushion against market uncertainty, as is the current scenario.
Considering these aforementioned favorable factors to continue in 2023 also, we believe investing in stocks like United Airlines Holdings, Inc.(UAL - Free Report) ,Ryder System, Inc.(R - Free Report) and Air Transport Services Group, Inc.(ATSG - Free Report) seems a prudent move.
3 Transportation Stocks Set to Fly High Next Year
We have picked three transportation stocks, which are set to perform well in 2023 and are backed by a Zacks Rank #2 (Buy) and a VGM Score of A. These stocks have a market capitalization of more than $1 billion and are witnessing positive revisions. Additionally, these have a strong trailing four-quarter average earnings surprise history. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities for investors. Thus, the selected companies appear to be compelling investment propositions at the moment.
United Airlines: This Illinois-based company provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East and Latin America. United Airlines is seeing a steady recovery in domestic and leisure air travel demand. Owing to buoyant air-travel demand, United Airlines anticipates TRASM to increase in the 24%-25% band in the December quarter from fourth-quarter 2019 actuals. Driven by solid demand, management expects total revenue per available seat mile (TRASM) to increase in the 24%-25% band in the December quarter from fourth-quarter 2019 actuals. UAL expects fourth-quarter earnings per share in the $2-$2.25 band. UAL is on track to achieve a pre-tax margin of approximately 9% in 2023.
The Zacks Consensus Estimate for United Airlines’ 2023 EPS has moved up 7% in the past 60 days. United Airlines has a trailing four-quarter earnings surprise of 7.77%, on average. UAL has a market capitalization of $15 billion.
United Airlines Holdings Inc Price and EPS Surprise
Ryder: This Florida-based logistics and transportation company is benefiting from strong rental demand and favorable pricing. R’s bullish outlook for 2022 is also encouraging. It now expects total revenues and operating revenues to increase approximately 23% and 18%, respectively, in 2022 (previous view: rise 22% and 16%, respectively). Adjusted EPS for the whole year is estimated in the range of $15.65-$15.85 (prior view: $14.30 - $14.80). R expects free cash flow in the range of $800-900 million (previous view: $750-$850 million) in 2022. Adjusted ROE (return on investment) is expected to be 26-27% (previous view: 25-26%).
The Zacks Consensus Estimate for Ryder’s 2023 EPS has moved up 0.8% in the past 60 days. Ryder has a trailing four-quarter earnings surprise of 30.13%, on average. R has a market capitalization of $4.32 billion.
Air Transport Services: This Ohio-based company provides aircraft leasing and air cargo transportation and related services in the United States and internationally. Surge in e-commerce demand during these coronavirus-ravaged times is a tailwind for Air Transport Services Group. Driven by increased demand for midsize freighters, the company has issued a bullish adjusted EBITDA view for 2022. The company expects the metric to be $640 million, nearly $100 million above the 2021 levels. Additionally, the performance of the Cargo Aircraft Management (CAM) unit (revenues up 23.5% year over year in the first nine months of 2022) is encouraging.
The Zacks Consensus Estimate for Air Transport Services’ 2023 EPS has moved up 2% in the past 60 days. Air Transport Services has a trailing four-quarter earnings surprise of 17.78%, on average. ATSG has a market capitalization of $1.98 billion.
Air Transport Services Group, Inc Price and EPS Surprise
Image: Shutterstock
3 Transportation Stocks That May Overtake the Market in 2023
The Zacks Transportation sector has been unfavorably affected by headwinds like increasing fuel costs and supply-chain woes. With oil price moving north, fuel costs flared up significantly, hurting the bottom-line performance of transportation stocks. This is because fuel expenses represent one of the major input costs for transportation players.
Supply-chain woes have also resulted in elevated costs. Also, staff shortages led to multiple flight cancellations, affecting profitability in turn.
Due to the abovementioned headwinds, the sector has declined 16.5% year to date.
Image Source: Zacks Investment Research
However, we would like to remind investors that despite the challenges there are multiple reasons to continue investing in the transportation sector.
How Will 2023 Shape Up for Transportation Companies?
The transportation sector, being widely diversified in nature, includes airlines, railroads, package delivery companies and truckers to name a few. Relaxation of COVID-19 travel restrictions and re-opening of the global economy have benefited transportation companies this year and are expected to do so in 2023 also.
Airline stocks are benefiting from a solid recovery in air-travel demand as people are again booking flights, leading to higher passenger revenues, which contribute to the bulk of most airlines’ top lines.
Given the upside in economic activities, freight demand continues to be strong despite minor hiccups. This supports growth of railroad operators and transportation service providers. The Cass Freight shipments Index improved 2.9% year over year in October. The overall improving trend is evident from the fact that the measure has improved year over year in six (February, March, July, August, September and October) of the 10 months reported so far this year. We expect this trend to continue in 2023.
Online shopping continues to gain despite the reopening of the normal market. This continued strength in e-commerce demand bodes well for packaging companies in the sector.
Due to increased demand, the financial health of transportation companies has improved this year. As a result, we have seen many companies in the space hiking dividends. Dividend stocks are safe bets for creating wealth, as the payouts generally act as a hedge against economic uncertainty. Investors are always on the lookout for dividend stocks as these provide a steady source of income and a cushion against market uncertainty, as is the current scenario.
Considering these aforementioned favorable factors to continue in 2023 also, we believe investing in stocks like United Airlines Holdings, Inc. (UAL - Free Report) , Ryder System, Inc. (R - Free Report) and Air Transport Services Group, Inc. (ATSG - Free Report) seems a prudent move.
3 Transportation Stocks Set to Fly High Next Year
We have picked three transportation stocks, which are set to perform well in 2023 and are backed by a Zacks Rank #2 (Buy) and a VGM Score of A. These stocks have a market capitalization of more than $1 billion and are witnessing positive revisions. Additionally, these have a strong trailing four-quarter average earnings surprise history. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities for investors. Thus, the selected companies appear to be compelling investment propositions at the moment.
United Airlines: This Illinois-based company provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East and Latin America. United Airlines is seeing a steady recovery in domestic and leisure air travel demand. Owing to buoyant air-travel demand, United Airlines anticipates TRASM to increase in the 24%-25% band in the December quarter from fourth-quarter 2019 actuals. Driven by solid demand, management expects total revenue per available seat mile (TRASM) to increase in the 24%-25% band in the December quarter from fourth-quarter 2019 actuals. UAL expects fourth-quarter earnings per share in the $2-$2.25 band. UAL is on track to achieve a pre-tax margin of approximately 9% in 2023.
The Zacks Consensus Estimate for United Airlines’ 2023 EPS has moved up 7% in the past 60 days. United Airlines has a trailing four-quarter earnings surprise of 7.77%, on average. UAL has a market capitalization of $15 billion.
United Airlines Holdings Inc Price and EPS Surprise
United Airlines Holdings Inc price-eps-surprise | United Airlines Holdings Inc Quote
Ryder: This Florida-based logistics and transportation company is benefiting from strong rental demand and favorable pricing. R’s bullish outlook for 2022 is also encouraging. It now expects total revenues and operating revenues to increase approximately 23% and 18%, respectively, in 2022 (previous view: rise 22% and 16%, respectively). Adjusted EPS for the whole year is estimated in the range of $15.65-$15.85 (prior view: $14.30 - $14.80). R expects free cash flow in the range of $800-900 million (previous view: $750-$850 million) in 2022. Adjusted ROE (return on investment) is expected to be 26-27% (previous view: 25-26%).
The Zacks Consensus Estimate for Ryder’s 2023 EPS has moved up 0.8% in the past 60 days. Ryder has a trailing four-quarter earnings surprise of 30.13%, on average. R has a market capitalization of $4.32 billion.
Ryder System, Inc. Price and EPS Surprise
Ryder System, Inc. price-eps-surprise | Ryder System, Inc. Quote
Air Transport Services: This Ohio-based company provides aircraft leasing and air cargo transportation and related services in the United States and internationally. Surge in e-commerce demand during these coronavirus-ravaged times is a tailwind for Air Transport Services Group. Driven by increased demand for midsize freighters, the company has issued a bullish adjusted EBITDA view for 2022. The company expects the metric to be $640 million, nearly $100 million above the 2021 levels. Additionally, the performance of the Cargo Aircraft Management (CAM) unit (revenues up 23.5% year over year in the first nine months of 2022) is encouraging.
The Zacks Consensus Estimate for Air Transport Services’ 2023 EPS has moved up 2% in the past 60 days. Air Transport Services has a trailing four-quarter earnings surprise of 17.78%, on average. ATSG has a market capitalization of $1.98 billion.
Air Transport Services Group, Inc Price and EPS Surprise
Air Transport Services Group, Inc price-eps-surprise | Air Transport Services Group, Inc Quote