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The gradual resumption of economic activities and an uptick in world trade already proved to be a boon for stocks in the widely diversified Zacks Transportation sector. In first-quarter 2022 earnings season, which is almost over for the sector, the upsurge in economic activities boosted the results of most sector participants. Stocks like C.H. Robinson Worldwide CHRW, Southwest Airlines LUV and Air Transport Services Group ATSG outperformed on the top and bottom-line fronts in the first quarter and should grace an investor’s portfolio.
Let’s delve deeper.
The latest earnings preview suggests that 86.7% of S&P 500 transportation companies beat on EPS, while 86.7% surpassed on revenues and 80% beat on both counts. This is indeed a commendable performance, given the sharp rise in oil fuel costs. Consequently, high fuel costs hurt the bottom-line performances. The oil price escalation of 33% in first-quarter 2022 was induced by the Russia-Ukraine war.
The sharp rise in fuel expenses, one of the key input costs of any transportation player, flared up operating expenses and dented bottom-line growth of transport stocks in the March quarter. This is well-reflected in the earnings preview report, which shows a year-over-year decline of more than 350% in EPS for the S&P 500 fraternity of the sector.
The picture was rosy on the top-line front as highlighted by 33.7% year-over-year revenue growth, per the report. The ramp-up in economic activities supported the top-line numbers in first-quarter 2022. Administered with jabs, people are now more confident of going out and resuming their daily activities.
For example, improvement in air-travel demand aided the results of airlines with many issuing bullish forecasts for the June quarter, assuming the trend not only to continue but get better. Similarly, with the freight scene on the mend in the United States, the results of railroads and other concerned transportation players were also driven.
Against this backdrop, let’s focus on the transportation players that outperformed not only with respect to revenues but also with respect to earnings despite the fuel cost upsurge. Moreover, they carry either a Zacks Rank# 1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Also, each of the stocks witnessed a favorable current-year earnings estimate revision.
Our Choices
Southwest Airlines: Improvement in air-travel demand (particularly on the leisure front) aided LUV’s first-quarter results. Southwest Airlines delivered a positive surprise of 5.88% and 0.55% each concerning both EPS and revenues in the March quarter, respectively. Anticipating a continued improvement in bookings owing to upbeat air-travel demand, this Dallas-based carrier expects to reap profits in the remaining three quarters of 2022 as well as for the full year. Owing to LUV’s multi-year fuel hedging program, it is insured against spikes in jet fuel prices like the current scenario.