The picture that has been unfolding in the Q4 earnings season is a rosy one so far. According to the latest Earnings Preview, this positive scenario is anticipated to continue. In fact, the above report projects that companies in the prestigious S&P 500 space will end Q4 with an overall bottom-line growth of 11.4% year over year. Additionally, stocks in this highly sought-after fraternity are expected to end Q4 with their top line expanding 7.5%. Both these figures compare favorably with the readings in the previous quarter, when bottom line expanded 6.7% and revenues grew 5.9%.
In fact, 14 of the 16 Zacks sectors are anticipated to end the reporting cycle with earnings growth, one being the widely-diversified Zacks Transportation sector. The bottom line for this sector is projected to increase 2.6% compared to the year-over-year decline of 13.9% in preceding quarter.
Transports Bounce Back
Stocks in the transportation space seem to be back in favour, after being laid low for most of 2017 due to multiple headwinds like the back-to-back hurricanes. Also, the new tax law (Tax Cuts and Jobs Act) is a huge positive for the companies in this space. Notably, the $1.5 trillion tax overhaul package signed into law by President Trump on Dec 22, 2017, reduces corporate taxes from 35% to 21%.
Buoyed by the new law, various sector participants like Southwest Airlines and Kansas City Southern (KSU - Free Report) have declared bonuses for their employees. Apart from the huge drop in corporate tax rate, the fact that companies are now allowed to deduct their capital expenditures from taxable income immediately has proved to be favorable for transport stocks as they will be able to invest toward capital expenditures considerably.
String of Outperformances in Q4
In line with the optimism surrounding the sector, the key players like American Airlines (AAL - Free Report) and Norfolk Southern (NSC - Free Report) have reported better-than-expected results in Q4.
Moreover, the likes of Norfolk Southern and Alaska Air Group have announced hikes in their respective quarterly dividend payouts. This signifies their financial prosperity and shareholder-friendly attitude.
What Lies Ahead?
Given this healthy backdrop, investors interested in the transportation space will keenly await Q4 reports from key sector participants like United Parcel Service (UPS - Free Report) , Schneider National (SNDR - Free Report) , SkyWest (SKYW - Free Report) and Heartland Express (HTLD - Free Report) .
According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase its odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
United Parcel Service is the world's largest express carrier and package delivery company. The company provides specialized transportation and logistics services in the United States and internationally. E-commerce growth is likely to aid the company’s results in the soon to-be-reported quarter. Revenues from the company’s U.S. Domestic Package unit are also likely to benefit from increased package volumes on the back of e-commerce growth.
In the to-be-reported quarter, we expect the company to report better-than-expected earnings per share. This is because it has an Earnings ESP of +0.10 and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Our model had predicted an earnings beat earlier too when we issued its Q4 earnings preview article. The company carried a Zacks Rank #3 while the Earnings ESP was the same. UPS is scheduled to report on Feb 1.