The current reporting cycle is gathering steam, with earnings reports available from 139 S&P 500 companies, as of Oct 24, per the latest Earnings Outlook. Total earnings and revenues for these companies increased 22% and 8.7% year over year, respectively. While 82% of the 139 companies have reported better-than-expected earnings per share, 62.6% surpassed top-line expectations.
According to the above report, stocks in this highly sought-after fraternity are expected to end the current earnings season with top- and bottom-line growth of 7.2% and 20%, respectively. In the event of the forecast coming true, this would be the sixth out of the last seven quarters to register double-digit earnings growth.
Generally, the performance of the index is determined by all the 16 Zacks sectors, out of which, 14 are estimated to record year-over-year earnings growth.
Transports Flying High
Notably, 10 of the 16 Zacks sectors are expected to record double-digit earnings growth on a year-over-year basis. One of them is the widely-diversified Zacks Transportation sector. As of Oct 24, 57.1% of transportation companies in the coveted S&P 500 index have released the financial numbers.
Total earnings and revenues for these companies rose 31.3% and 10.5% year over year, respectively. Moreover, 50% of the S&P 500 transports have reported better-than-expected earnings per share and 75% of them surpassed top-line expectations. The Earnings Outlook further states that investors were impressed with the solid bottom-line performances despite high fuel costs, as evident from the extremely favorable market reaction to the reports.
In fact, we have already seen earnings outperformances from key sector participants like Delta Air Lines, Inc. (DAL - Free Report) , CSX Corporation (CSX - Free Report) and Norfolk Southern Corporation (NSC - Free Report) in the current reporting cycle despite high fuel costs. Lower tax rates, a buoyant economy leading to robust freight activity in the United States and solid demand for travel are some of the key catalysts behind this impressive performance.
What Lies Ahead?
Given this bullish backdrop, investors interested in the Transportation sector keenly await earnings reports from key sector participants, The Greenbrier Companies, Inc. (GBX - Free Report) and Ryder System, Inc. (R - Free Report) on Oct 26.
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.
The Greenbrier Companies, Inc., a maker of railroad freight car equipment will report its fourth-quarter fiscal 2018 (ended Aug 31, 2018). We expect the company to perform well in the soon-to-be-reported quarter on the back of robust manufacturing revenues. The Zacks Consensus Estimate for fourth-quarter manufacturing revenues is pegged at $541 million, above $510 million registered in the fiscal third quarter.
Greenbrier is expected to receive an impressive amount of new railcar orders during the three-month period (June to August), which is an added positive. In fact, the company has already announced that it received orders to the tune of 5,000 railcars, valued in excess of $425 million, in the first two months of the soon-to-be-reported quarter.
Moreover, the company has a Zacks Rank #3 and an Earnings ESP of +1.45% (the Most Accurate Estimate of $1.09 is pegged 2 cents above the Zacks Consensus Estimate), indicating a likely positive surprise in its fiscal fourth quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ryder System, Inc., is recognized as one of the world's largest providers of integrated logistics and transportation solutions. We expect Ryder’s third-quarter 2018 results to be hurt by high operating expenses. Apart from high fuel costs, increased capital expenditures are weighing on the bottom line and are expected to do so in the soon-to-be-reported quarter as well.
Also, the scenario pertaining to used vehicle sales is expected to remain challenging in 2018 due to weak market conditions. Moreover, our proven model does not show conclusively that the company will report better-than-expected earnings per share in the third quarter despite its Zacks Rank #3. This is because of the company has an Earnings ESP of -0.61% (the Most Accurate Estimate of $1.62 is pegged 1 cent below the Zacks Consensus Estimate).
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