3 Transportation Stocks to Top Earnings - Earnings ESP

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3 Transportation Stocks to Top Earnings

The year 2014 put the transportation stocks on a choppy track, as harsh winter conditions took its toll on most of the freight transportation companies. Operational efficiencies scaled down, while costs shot up, leading some major railroads to lower their bottom-line expectations for 2014.  

However, expectation of improved U.S. economic growth in the coming quarters and beyond is a net positive for this economically sensitive sector. We remain optimistic as the transportation sector is witnessing a gradual recovery. Further, the upsurge in petrochemical shipments has also uplifted market conditions within this industry, leading to overall earnings improvement.

Earnings So Far

In the now-being-reported Q1 earnings season, 97.7% of the sector participants have reported results so far, with total earnings up 6.5% year over year on 3.4% higher revenues. This represents a better performance compared to the S&P 500. However, the seasonal impact brought down operating results of these companies from what we observed in the fourth quarter of 2013 and the trailing 4-quarter average. 

Nevertheless, we remain positive on the sector given better numbers from freight carriers and other logistic companies on favorable market fundamentals, recovering market demand on key product shipments, and high shipping rates.

Although, we are at the tail end of the Q1 earnings season, the backdrop looks perfect to zero in on a handful of transportation stocks that seem confident of beating earnings estimates in their upcoming announcements. An earnings surprise should also help these stocks outperform in the near term.

How to Find the Right Stocks?

Stock diversity in the transportation arena could muddle up your picking power. An easy way to narrow down choices is to take a look at stocks with a solid Zacks Rank and a favorable Earnings ESP.

Earnings ESP is our proprietary methodology for determining stocks that have high chances of surprising with their next earnings announcements. Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

The combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) - and a positive earnings ESP, is usually a harbinger of earnings beat and a near-sure formula for success in this risk-ridden macro economy.

For investors seeking to benefit by applying this strategy to their portfolio, we present three transportation stocks that have the right combination of elements to beat earnings. 

Ship Finance International Limited ( SFL )

Ship Finance International Limited is a major shipping liner, which owns and operates vessels primarily in Bermuda, Cyprus, Malta, Liberia, Norway, Singapore, the United Kingdom, and the Marshall Islands. As of Mar 2014, the company had one of the world's largest fleet comprising 73 vessels.

Currently, the Zacks Consensus Estimate for Ship Finance International's first-quarter earnings is 31 cents with growth expectation of 80.39% over the prior-year quarter. The company had recorded a positive earnings surprise of 10.53% in the last quarter. 

Ship Finance International currently holds a Zacks Rank #3 and has an earnings ESP of +35.48%. 

--The carrier is slated to report its first-quarter financial results on May 29. 

Teekay Corporation ( TK )

Headquartered in Bermuda, Teekay Corp. is a shipping company involved in marine transportation services for crude oil and gas. The company serves internationally and owns approximately 170 liquefied gas, offshore and conventional tanker assets. 

The Zacks Consensus Estimate for Teekay Corp.'s first-quarter loss is 14 cents, representing an improvement of 18.63% year over year. The company had delivered a positive earnings surprise of 200% in the last reported quarter.

Teekay Corp. presently carries a Zacks Rank #3 and has an earnings ESP of +378.57%. 

--The company will report its earnings on May 15, before market opens.

Teekay Tankers Ltd. ( TNK )

Established in 2007, Teekay Tankers is a wholly owned subsidiary of Teekay Corporation. The company is engaged in marine shipping, particularly for crude oil and refined petroleum products. 

The Zacks Consensus Estimate for Teekay Tankers' first-quarter earnings is pegged at 10 cents, representing robust 350% year-over-year growth. The company had registered a positive earnings surprise of 25% in the last quarter. 

Teekay Tankers presently carries a Zacks Rank #3 and has an earnings ESP of +20.00%. 

--The company is set to report its first-quarter results on May 15, before market opens.

Moving Forward

The transportation sector is trying to recover from its lull with palpable improvements in the fundamentals of shipping and logistic companies. With an improving economy, the transportation sector will show solid gains.  


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings

Referenced Stocks: SFL , TK , TNK

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