Back to top

Image: Bigstock

Covenant Transportation (CVTI) Q3 Earnings: What's in Store?

Read MoreHide Full Article

Covenant Transportation Group, Inc. (CVTI - Free Report) is expected to release its third-quarter 2018 results on Oct 18.

In the second quarter of 2018, the company delivered a positive earnings surprise of 10.2%. The bottom line also improved on a year-over-year basis. This apart, it has an impressive earnings history. The company has outperformed the Zacks Consensus Estimate in three of the trailing four quarters, with average beat is 15.5%.

Given this backdrop, lets delve into the details to unearth the factors likely to influence its third-quarter results:

We expect Covenant Transportation’s results to be aided by a significant increase in freight revenues, which account for bulk of the top line. In fact, the entire trucking industry has been benefiting from surge in freight demand. Fuel surcharge revenues are also expected to improve substantially in the to-be-reported quarter.

The top line should also benefit from additional revenues owing to the acquisition of Landair Holdings in July 2018. However, high costs are likely to limit bottom-line growth in the quarter to be reported. Expenses on fuel and salaries, wages and other related items are expected to lead to an uptick in operating expenses, thereby weighing on the bottom line.

Expenses related to the purchase of Landair Holdings might also push up costs. Management expects operating ratio (operating expenses minus fuel surcharge revenues, divided by freight revenues) for the third quarter to be roughly similar to that registered in the second quarter of 2018.

Earnings Whispers

According to our proven model, a company needs to have the right combination of the following two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. However, that is not the case here as highlighted below.

Earnings ESP: Covenant Transportation has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 60 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We note that Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Stocks to Consider

Investors interested in the broader Transportation Sector may check out the following companies with the right combination of elements to beat estimates in the next releases:

Atlas Air Worldwide Holdings, Inc. (AAWW - Free Report) has an Earnings ESP of +2.94% and a Zacks Rank #1 (Strong Buy). The company will release third-quarter 2018 results on Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Union Pacific Corporation (UNP - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #2 (Buy). The company will release third-quarter 2018 results on Oct 25.

Alaska Air Group, Inc. (ALK - Free Report) has an Earnings ESP of +1.05% and a Zacks Rank #3.  The company will release third-quarter 2018 results on Oct 25.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>