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4 Transportation Stocks Likely to Surpass Q4 Earnings Estimates

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The widely diversified Zacks Transportation sector, housing airlines, railroads, trucking and shipping companies, among others, continues to be aided by improved freight demand and the rebound in demand for air travel after enduring pandemic lows.

These positives contributed to the results of the handful of sector participants who have already reported fourth-quarter 2022 results. The same tailwinds should help entities like JetBlue Airways (JBLU - Free Report) , Norfolk Southern Corporation (NSC - Free Report) , Old Dominion Freight Line (ODFL - Free Report) and American Airlines (AAL - Free Report) post better-than-expected earnings per share for the December quarter.

Let’s delve deep into the factors that are likely to boost the fourth-quarter results of the sector participants who are yet to announce earnings.

Despite headwinds like supply-chain woes and inflationary pressures, freight demand has been impressive. This has supported growth of sector participants like NSC and ODFL. On a seasonally adjusted basis, Cass Freight shipments Index improved 1.2% month over month in December. The index improved on a seasonally adjusted basis month over month in two (October and December) of the three months of the fourth quarter. Upbeat crude and product tanker rates should aid the results of the shipping companies in the December quarter.

Even though economies are reopening, consumers’ urge for online shopping refuses to relent. Apart from consumer habits, the digitalization-related trend is helping e-commerce demand stay strong.

Another major positive is the stronger-than-expected recovery in air-travel demand. People are again resorting to air travel as they resume their normal activities. Strong passenger volumes are likely to drive results of the yet-to-report airline companies. The presence of the Thanksgiving holiday period during the fourth quarter is likely to have boosted passenger volumes.

Our  Earnings Preview report suggests that the transportation sector’s quarterly earnings (considering S&P 500 participants only) are likely to increase 36.8% from the third-quarter 2022 actuals.

Here’s How to Pick the Right Stocks

Against the current backdrop and amid a large number of transportation stocks, it is always a daunting task for investors to pick a winning basket of stocks with the potential to deliver better-than-expected earnings.

While there is no foolproof method of choosing outperformers, our proprietary methodology — the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — helps identify stocks with high chances of delivering a positive surprise in their upcoming earnings announcement. Our research shows that for stocks with this perfect mix of elements, the odds of an earnings beat are as high as 70%.

The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Choices

JetBlue Airways has an Earnings ESP of +6.77% and a Zacks Rank #3. JBLU will release results on Jan 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Upbeat air-travel demand is expected to have aided the fourth-quarter performance of this low-cost carrier. JBLU’s earnings surpassed the Zacks Consensus in two of the last four quarters (missing the consensus mark in the other two), the average miss being 80.97%.

Norfolk Southern has an Earnings ESP of +1.33% and a Zacks Rank #3. NSC will release results on Jan 25.

We expect the upbeat demand scenario to have aided NSC’s fourth-quarter performance. The intermodal and merchandise segments are expected to have been the main growth drivers. NSC’s earnings surpassed the Zacks Consensus in each of the last four quarters by an average of 4.06%.

Old Dominion Freight has an Earnings ESP of +1.33% and a Zacks Rank #3. NSC will release results on Feb 1.

We expect ODFL’s fourth-quarter performance to have been aided by an increase in less than truckload (LTL) tons per day and a rise in LTL revenue per hundredweight. ODFL’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters by an average of 8.39%.

American Airlines has an Earnings ESP of +9.79% and a Zacks Rank #2. AAL will release results on Jan 26.

We expect upbeat air-travel demand, particularly on the domestic front, to have boosted American Airlines’ top-line performance in the to-be-reported quarter. Passenger revenues, which account for the bulk of the top line, are likely to have been high, in turn, boosting the top line. AAL’s earnings surpassed the Zacks Consensus in three of the last four quarters (missing the consensus mark in the other one), with the average beat being 8.62%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar

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