According to the latest Earnings Preview, total earnings and revenues for companies in the S&P 500 space are projected to expand 14.1% and 8.2%, on a year-over-year basis, at the end of the current earnings season. In fact, both the figures compare favorably with the readings in Q3, when bottom line expanded 6.7% and revenues grew 5.8%. The progress in the quarterly performance can be attributed to an improved job market, among other factors.
With the overall scenario so bright, it is of little wonder that 14 of the 16 Zacks sectors are projected to end the reporting cycle with earnings growth. Of these, one is the widely-diversified Zacks Transportation sector. The bottom line for this sector is projected to increase 3.3% compared with the year-over-year decline of 13.9% in preceding quarter.
Transports Bounce Back
Stocks in the transportation space seem to be back in favor, after being laid low for the 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 signed into law by President Trump on Dec 22, 2017 reduces corporate taxes significantly. This is likely to boost cash flow, which in turn will aid earnings of transportation stocks.
Apart from the significant drop in corporate tax rate, the new law allows these companies to deduct capital expenditures from taxable income in the year of their occurrence. This aspect hugely favors transportation stocks as these invest substantially in capital expenditures. In fact, many sector participants have declared bonuses for their employees recently, thus highlighting their optimism pertaining to the new law.
Given the buoyance in the sector, key players like American Airlines (AAL) and Norfolk Southern (NSC) have reported better-than-expected earnings and revenues in Q4.
Moreover, the likes of Norfolk Southern and Alaska Air Group (ALK) have announced hikes in their respective quarterly dividend payouts recently. This signifies their financial prosperity and shareholder-friendly attitude.
In view of the bullish sentiment surrounding the sector, it would not be a bad idea to add transports with the potential to report better-than-expected earnings in Q4, to one’s portfolio. This is because a stock generally surges on an earnings beat.
How to Identify Winners?
With a wide range of transportation firms thronging the investment space, it is by no means an easy task for investors to choose stocks that have the potential to deliver better-than-expected earnings.
This is where our proprietary methodology shows its mettle. It advises investors to look for stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP..
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Markedly, Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with the above-mentioned combination, the chance of a positive earnings surprise is as high as 70%.
With the help of the above methodology, we present four transportation stocks that are expected to outshine earnings estimates in Q4.
Copa Holdings (CPA - Free Report) is a leading Latin American airliner. It has an Earnings ESP of +13.5%, as the Most Accurate estimate of $2.69 per share is pegged above the Zacks Consensus Estimate by 32 cents. The company carries a Zacks Rank #3 and is scheduled to report results on Feb 21. The favorable combination makes an earnings beat likely in the soon-to-be reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
This Panama City-based carrier has a robust earnings history, having outpaced the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 6.4%.
Trinity Industries (TRN - Free Report) is a Dallas, TX-based company that provides products and services to the energy, transportation, chemical and construction sectors across the globe. It has an Earnings ESP of +1.59% as the Most Accurate estimate of 43 cents per share is a penny above the Zacks Consensus Estimate. The stock carries a Zacks Rank #3 and is scheduled to report results on Feb 21. The favorable combination makes an earnings beat likely in the soon-to-be reported quarter.
The company has a robust earnings history, having surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 15.9%.
Diana Shipping (DSX - Free Report) , based in Athens, Greece, specializes in the ownership of dry bulk vessels. This Zacks Rank #3 shipping stock has an Earnings ESP of +7.2%. The company will report its results on Feb 22. It has a long-term earnings growth rate (next three to five years) of 5%.
Star Bulk Carriers Corporation (SBLK - Free Report) is a leading global shipping company in the dry bulk space. This Greece-based carrier has an Earnings ESP of +13.08% and a Zacks Rank #3. The company is anticipated to reveal its results on Feb 28. The stock has witnessed the Zacks Consensus Estimate for fourth-quarter earnings being revised 29.4% upward over the last 30 days.
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