5 Shipping Stocks Likely To Beat Estimates In Q1 Earnings

The Q1 earnings season is well past the halfway mark with results available from 358 S&P 500 companies, representing 78.2% in terms of the index’s total market capitalization, according to our latest Earnings Trends report. In fact, the overall picture to have emanated so far is an extremely rosy one, with the companies’ bottom and top line expanding 12.9% and 7.9%, respectively, on a year-over-year basis. Notably, this bullish picture can be attributed to a turnaround in the economy as well as improved job market scenario, among other indicators.

Transports Continue to Lag

Despite the overall favorable scenario, the transportation sector remains a laggard. The sector has already witnessed reports from its entire S&P 500 fraternity this reporting cycle. According to the above report, the bottom line contracted 17.9% on a year-over-year basis for the sector. But, the earnings performance seems to be marginally better than that witnessed in the fourth quarter of 2016, wherein the bottom line contracted 18.2%.

However, the disappointing performance of this highly diversified sector is not surprising because escalated costs have limited bottom-line growth for stocks in the space. In fact, we have already seen key sector participants like United Continental Holdings (UAL), Ryder System (NYSE:R) (R) and Delta Air Lines (NYSE:DAL) (DAL) reporting significant year-over-year bottom-line decline in Q1. It should be noted that increasing labor costs have hurt the bottom line for most of the sector participants, particularly airlines.

Fuel Costs Rise

The rise in fuel costs also does not augur well for transports. This is because costs associated with oil are considered to be one of the major input costs for any transportation company. Furthermore, on the back of recent optimism surrounding oil price following last year's OPEC deal, oil ended the first quarter at $50.60 per barrel, which though lower sequentially, was much higher than year-ago levels.

Currently, oil prices are hovering around the $48 per barrel mark. This represents a significant uptick from the 12-year low of $26.12 per barrel touched in Feb 2016.

Shipping Stocks Offer a Glimmer of Hope

Even though the picture is gloomy for the broader transportation industry, the situation is bright for one of its sub-groups shipping. In fact, the renewed interest in shipping stocks after having struggled for quite some time can be gauged from the surge in the Baltic Dry Index earlier this year. The Baltic Dry Index is a gauge of the shipping costs of raw materials such as iron ore, coal and grain (Read more: Buy Into the Shipping Rally with These 4 Great Stocks).

The favorable Zacks Industry Rank of 95 carried by the 49 member Zacks-categorized Transportation- Shipping further augments the good times for shipping stocks. The favorable rank places the industry in the top 37% of the 250+ groups enlisted.

The fact that the Zacks-categorized Transportation- Shipping industry has outperformed the S& P 500 Index in Q1 further highlights the bullish sentiment regarding the stocks. The shipping industry gained almost 9% during the period, which is higher than the appreciation of 6.1% witnessed by the S&P 500 Index.

How to arrive at Outperformers?

The transportation sector is highly diversified and includes airline companies, truckers, shippers and railroads to name a few. Hence, it is by no means an easy task to pinpoint potential outperformers.

While it is impossible to be sure about such outperformers, our proprietary methodology - Earnings ESP - makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

5 Attractive Shipping Stocks

Diana Shipping Inc. (DSX), based in Athens, Greece, specializes in the ownership of dry bulk vessels. This Zacks Rank #3 shipping stock currently has an Earnings ESP of +2.7%. The company delivered a positive earnings surprise to the tune of 5% in the fourth quarter of 2016.

Diana Shipping will report its first-quarter 2017 results on May 23, before the commencement of trading.

Eagle Bulk Shipping Inc. (EGLE), based in Stamford, Connecticut, owns one of the largest fleets of Supramax/Ultramax dry bulk vessels in the world. This Zacks Rank #2 shipping stock currently has an Earnings ESP of +22.73%. The company will report its first-quarter 2017 results on May 8, after market closes.

Frontline Ltd. (FRO), based in Hamilton, Bermuda, this Zacks Rank #3 provider of seaborne transportation of crude oil and oil products currently has an Earnings ESP of +8.33%. The Zacks Consensus Estimate for first-quarter 2017 earnings is pegged at 12 cents.

The company is expected to report its first-quarter results on May 30.

Nordic American Tankers Limited (NAT) is engaged in acquiring, disposing, owning, leasing and chartering multiple double hull Suezmax oil tankers. This Zacks Rank #3 company currently has an Earnings ESP of +33.33%. The company will report its first-quarter 2017 results on May 8, before market opens.

Gener8 Maritime (GNRT), based in New York, is a leading provider of international seaborne crude oil transportation services. This Zacks Rank #3 company currently has an Earnings ESP of +6.98%. The Zacks Consensus Estimate for first-quarter 2017 earnings is pegged at 43 cents.
The company will report its first-quarter 2017 results on May 9, before market opens.

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