Transportation sector, being widely diversified, houses airlines, railroads, trucking and shipping companies, among others. Despite being dented by raging inflation, higher interest rates, increased fuel price, supply-chain disruptions and a slowdown in freight demand, the sector continues to be aided by the pickup in economic activities and the rebound in demand for air travel after enduring pandemic lows.
Let’s discuss the tailwinds aiding the sector.
Airlines, which is an integral part of the sector, benefits from a solid recovery in air-travel demand. People are booking flights, which is boosting passenger revenues that contribute to the bulk of most airlines’ top line. Sector players’ focus on boosting cargo revenues bodes well for top-line growth, especially when passenger revenues are rebounding strongly from the pandemic lows.
Airline stocks are likely to continue flying high with the summer travel season fast approaching when air-travel demand is likely to swell. Per Airlines for America, U.S. airlines are
anticipated to carry 257 million passengers from Jun 1 to Aug 31, 2023. The projection is at an all-time high.
Shipping stocks in the sector also look attractive. With economic activities picking up and key economies like China reopening, shipping stocks in the sector are expected to be in good shape. This is because the shipping industry is responsible for transporting the bulk of the goods involved in global trade.
The upbeat demand for liquefied natural gas marks a huge positive. Elevated inflation levels raised oil and natural gas prices. Amid the prolonged Russia-Ukraine war, Europe is likely to seek gas supplies outside Russia. This is expected to drive demand for LNG vessels.
The cost-cutting measures undertaken by sector participants to combat the weak demand scenario are also contributing to bottom-line growth.
Another key positive for the sectoral participants is the decline in fuel costs. Expenses on fuel are one of the key input costs for any transportation player. The downtick in fuel costs should support bottom-line growth. The easing of supply chain disruptions also bodes well for sector participants.
3 Transportation Stocks to Buy Now
Given the aforementioned positivity surrounding the sector, we have picked
Copa Holdings, S.A. ( CPA Quick Quote CPA - Free Report) , Allegiant Travel Company ( ALGT Quick Quote ALGT - Free Report) and Triton International Limited that investors can bet on.
These stocks have a Zacks Rank #1 (Strong Buy) or #2 (Buy), a
VGM Score of A or B and a solid expected earnings growth rate for the current year. These have also witnessed upward estimate revisions in the past 60 days. Additionally, these stocks have a strong trailing four-quarter average earnings surprise history. You can see the complete list of today’s Zacks #1 Rank 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. The selected companies appear seem compelling investment propositions at the moment.
Also, all the above-mentioned stocks have outperformed the sector with respect to price in the year-to-date period.
Image Source: Zacks Investment Research Copa Holdings: This Panama City-based company provides airline passenger and cargo services.
Copa Holdings’ top line is benefiting from the recovery in air-travel demand. Operating revenues for the March quarter increased 29% to $867.3 million on the back of passenger revenues. Passenger revenues (contributing 96.2% to the top line) increased 28.5% from first-quarter 2019 levels, owing to higher yields (up 20%).
CPA's focus on its cargo segment is very encouraging. In first-quarter 2023, cargo and mail revenues surged 51.8% to $23.25 million, owing to higher cargo volumes and yields. The company’s fleet modernization and cost-management efforts are commendable.
CPA reported highly-impressive traffic numbers for May 2023 on the back of upbeat air-travel demand. Driven by high passenger volumes, Copa Holdings’ revenue passenger miles (a measure of traffic) rose 15.8% in May on a year-over-year basis. To match the demand swell, CPA is increasing capacity. In May, available seat miles (a measure of capacity) increased 15.3% year over year. With traffic growth outpacing capacity expansion, the load factor (percentage of seats filled by passengers) improved to 86.1% from 85.7% in May 2022.
Copa Holdings flaunts a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for CPA 2023 EPS has moved up 25.3% in the past 60 days. Its expected earnings growth rate for 2023 is 84.14%. CPA has a trailing four-quarter earnings surprise of 14.60%, on average.
CPA has a market capitalization of $4.39 billion.
Allegiant: This Las Vegas, NV-based leisure travel company provides travel services and products to residents of under-served cities in the United States.
Allegiant is seeing a steady recovery in leisure air-travel demand. In first-quarter 2023, operating revenues grew 29.9% on a year-over-year basis. Passenger revenues, contributing 93.7% to the top line, increased around 31.3% on a year-over-year basis. Allegiant's fleet modernization efforts are encouraging. ALGT exited 2022 with 121 planes in its fleet. Fleet size at the end of 2023 is expected to be 127.
Allegiant carries a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for ALGT 2023 EPS has moved up 30.9% in the past 60 days. Its expected earnings growth rate for 2023 is more than 100%. ALGT has a trailing four-quarter earnings surprise of 79.78%, on average.
ALGT has a market capitalization of $2.19 billion.
Triton: This Hamilton, Bermuda-based company engages in the acquisition, leasing, re-leasing and sale of various intermodal containers and chassis to shipping lines, freight forwarding companies and manufacturers.
Triton's efforts to reward shareholders through dividends and share repurchases look encouraging. Triton repurchased 1.7 million shares in the first quarter of 2023. Also, TRTN’s board of directors declared a quarterly cash dividend of 70 cents per share. The dividend will be paid on Jun 22, to shareholders on record at the close of business on Jun 8. Such shareholder-friendly initiatives boost investor confidence and boost the company’s bottom line.
Triton carries a Zacks Rank #2 and has a VGM Score of B. The Zacks Consensus Estimate for TRTN 2023 EPS has moved up 1.2% in the past 60 days. TRTN has a trailing four-quarter earnings surprise of 6.29%, on average.
TRTN has a market capitalization of $4.58 billion.