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Beyond Virgin America: 4 Transportation Stocks That Hold Promise

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Stocks in the transportation sector have performed well on the earnings front, yet again in the third quarter of 2015 (which is on its last leg). The reason for the impressive bottom-line performance is not difficult to guess - as in the past few quarters, weak oil prices benefited players in the space.

With costs associated with fuel forming one of the major input costs for any transportation company, it is natural that the drop in oil prices, which has been ongoing for over a year, has been benefiting the bottom lines of stocks in the space.

However, revenue growth in the third quarter was sluggish - a scenario not much different from the preceding quarter. A stronger dollar was the key culprit on the revenue front through both quarters. Macro headwinds also played spoilsport in the third quarter.

To further substantiate our commentary regarding the contrasting top and bottom line performances of transportation stocks in the third quarter, we highlight certain statistics below.

With all the S&P 500 members in the transportation space having already announced their third-quarter 2015 numbers, the aggregate earnings beat ratio is an impressive 85.7%. On the other hand, the revenue beat ratio is a measly 28.6%. Average earnings growth is 22.5% while year-over-year top-line growth has treaded into the negative territory and stands at a negative 1.3% (read more: Zacks Earning Trends report ).

In this bleak top-line set-up, it would in fact be a good idea to pinpoint stocks in the transportation space, which apart from reporting higher-than-expected earnings, also outshined the Zacks Consensus Estimate for revenues in the third quarter of 2015.

Take for instance, Virgin AmericaVA .

The California-based low-cost airline went public in Nov 2014. The company, partly owned by British billionaire investor Richard Branson, had made an impressive debut on Nasdaq raising $307 million through its initial offering.

Virgin America has delivered solid third-quarter results, with both earnings and revenues beating expectations. Results were aided by low fuel costs. The carrier reported earnings of $1.64 per share outpacing the Zacks Consensus Estimate by 7 cents. Operating revenues came in at $410.9 million, surpassing the Zacks Consensus Estimate of $406 million and the year-ago figure by 1.3%.

In fact, Virgin America has an impressive record with respect to earnings. The carrier outshone the Zacks Consensus Estimate in three of the last four quarters with an average earnings beat of 19.14%. Moreover, earnings estimates for Virgin America have been on an upswing following strong third-quarter results.

Over the last 30 days, the 2015 Zacks Consensus Estimate of earnings has gone up 14 cents to $4.69 per share. Likewise, the Zacks Consensus Estimate for 2016 has jumped 15 cents over the last month to $4.97 per share. Moreover, the company's long-term estimated earnings growth rate of 26.9% exceeds the industry average of 18.3%.

In view of the above positive characteristics at Virgin America, we are bullish on this Zacks Rank #3 (Hold) stock.

4 Better-Ranked Transportation Stocks

With oil prices currently hovering around the $40 a barrel mark, having crossed the $100 a barrel mark just over a year ago, it is a foregone conclusion that stocks in the transportation sector are enjoying a purple patch, courtesy the massive drop in fuel costs. In this favorable backdrop we highlight four well-performing transportation stocks that score over Virgin America as far as our proprietary Zacks Rank is concerned.

Southwest AirlinesLUV founded in 1967 and headquartered in Dallas, TX, reported higher-than-expected earnings and revenues in the third quarter of 2015, much like Virgin America. The carrier reported third quarter earnings of 94 cents per share, surpassing the Zacks Consensus Estimate by 2 cents. Results, here too, benefited from low fuel costs. Quarterly revenues moved up 2% year over year to $5,318 million, steering past the Zacks Consensus Estimate of $5,102 million.

Southwest Airlines has outperformed the Zacks Consensus Estimate with respect to earnings in three of the last four quarters with an average beat of 3.64%. Moreover, earnings estimates for the carrier have been on the rise following strong third-quarter results. Over the last 60 days, the 2015 Zacks Consensus Estimate of earnings has gone up 8 cents to $3.53 per share.

Likewise, the estimate for 2016 has jumped 28 cents over the last month to $3.98 per share. The long-term estimated earnings growth rate of 21.6% at the company exceeds the industry average of 18.3%.

And, of course, Southwest Airlines sports a favorable Zacks Rank #1 (Strong Buy).

Hawaiian HoldingsHA , the holding company of Hawaiian Airlines, was founded in 1929 and is headquartered in Honolulu, Hawaii. The company too outpaced the Zacks Consensus Estimate both on the top and bottom lines in the third quarter. The quarter's earnings outperformance marked the third such instance for the company in the last four quarters with an average earnings beat of 6.8%.

Needless to say, earnings per share estimates have moved north, 29 cents to $3.06 and 33 cents to $3.23, over the last 60 days, for 2015 and 2016 respectively. The long-term estimated earnings growth rate of 33.4% possessed by Hawaiian Holdings exceeds the industry average of 18.3%.

The Zacks Rank #1 sported by the company further strengthens our positive stance on the stock.

SkyWestSKYW was founded in 1972 and is headquartered in St. George, UT. The company, like its peers mentioned above, has reported higher-than-expected earnings and revenues in the third quarter. The company has delivered positive earnings surprises in each of the last four quarters, averaging in excess of 100%. Earnings per share estimates have gone up for 2015 (up 9 cents to $1.90 over the last 30 days) as well as 2016 (up 23 cents to $2.10 over the same time period) following the strong third-quarter results.

In addition, the Zacks Rank #1 held by SkyWest reinforces our confidence in the stock.

Danaos CorporationDAC is a leading international provider of containerships and chartering vessels to several of the world's largest liner companies. The company has reported better-than-expected earnings and revenues in the third quarter. Moreover, it has delivered positive earnings surprises in each of the last four quarters with an average earnings beat of 30.48%. Earnings per share estimates have moved north for 2015 (up 11 cents to $1.40 over the last 30 days) as well 2016 (up 8 cents to $1.71 over the same period), following the strong third-quarter results.

The Zacks Rank #1 that this shipping company sports further strengthens our faith in the stock.

To Wrap Up

Strong fundamentals coupled with a favorable backdrop (oil price dip) have certainly put the transportation stocks mentioned above in focus. With oil prices expected to remain weak and unlikely to touch the highs witnessed in mid-2014 any time soon, we believe that the above stocks will continue to perform well. Occasional blips like the recent Paris attacks, which hit travel stocks including airlines, we believe, should not dent the bright long-term prospects of the abovementioned stocks.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

HAWAIIAN HLDGS (HA): Free Stock Analysis Report

DANAOS CORP (DAC): Free Stock Analysis Report

SKYWEST INC (SKYW): Free Stock Analysis Report

VIRGIN AMERICA (VA): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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