3 Shipping Stocks Set For Smooth Sailing At The End Of Q1

With the first quarter 2015 earnings season in its last leg, the transportation sector has emerged as a credible performer. Stocks in the sector have benefited largely from weak oil prices and an improving U.S. economy. However, a strong US dollar has dampened the results to some extent as well.

Even though most transportation companies have already revealed their first quarter numbers, few are yet to report. Of these, most companies belong to the shipping space.

Plunging Oil Prices: A Boon for Shipping Stocks

Shipping companies are also enjoying the fruits of plunging oil prices. The slump in crude is expected to significantly reduce costs of bunker fuel prices. Despite the recent rally, crude prices have been hovering around the $55 a barrel mark. This represents a significant decline from the approximately $105 per barrel witnessed in July last year. In fact, oil prices have been fluctuating lately after hitting a 6-year low of under $44 in Mar 2015.

The weak oil prices suit tankers marvelously. By the end of last year, earnings of very large crude carriers (VLCC) were close to a level of $100,000 a day. Their average rates through 2014 were also the best in nearly four years. Low oil prices will boost demand for tankers, which in turn should result in higher rates for shipping companies.

We note that weak oil prices have benefited the transportation sector in general. This is because costs associated with oil form one of the major input costs for any transportation company. Key players in the airline space like Delta Air Lines (NYSE:DAL) have reported higher-than-expected earnings in the first quarter aided by low fuel costs.

Railroads: The Weak Link

With the bulk of the transportation companies having already reported their first quarter financial numbers, the results of U.S. based railroad operators have emerged relatively soft, as compared to the impressive performances delivered by truckers, logistics providers and airline companies.

Key railroad operators like Kansas City Southern (NYSE:KSU) and Union Pacific (NYSE:UNP) have missed the Zacks Consensus Estimate of earnings as well as revenues. Poised slightly better, CSX Corp (NYSE:CSX) and Norfolk Southern Corp (NYSE:NSC) reported in-line earnings but missed the mark for revenues. Railroad results were particularly hurt by weak coal shipments.


How to Pick the Winners?

In view of the high degree of diversity in the transportation space, it is by no means an easy task to shortlist stocks that have the potential to outperform on the earnings front. Here our proprietary methodology comes in handy. It advises investors to look for stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Zacks Earnings ESP.

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

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. An earnings beat more often than not boosts investor confidence in the stocks, which translates into rapid price appreciation.

3 Shipping Outperformers

With the aid of the above methodology, we hereby present three shipping stocks that are expected to outshine earnings estimates in their upcoming releases.

Teekay Tankers Ltd (NYSE:TNK) Based in Hamilton, Bermuda, this Zacks Rank #1 shipping stock currently has an earnings ESP of +43.33%. The Zacks Consensus Estimate for first-quarter 2015 earnings is pegged at 30 cents. The company has a decent track record with respect to earnings – it has delivered positive earnings surprises in two of the last four quarters, with a four-quarter average beat of 25.56%.

The company will report its first-quarter results on May 14, before the commencement of trading.

Tsakos Energy Navigation Ltd (NYSE:TNP): Headquartered in Athens, Greece, this Zacks Rank #2 company is a leading provider of international seaborne crude oil and petroleum product transportation services. The company offers marine transportation services to national, major, and other independent oil companies and refiners under long, medium, and short-term charters.

For the first quarter of 2015, Tsakos Energy currently has an earnings ESP of +17.65%. The Zacks Consensus Estimate for earnings stands at 34 cents, reflecting impressive year-over-year growth of 79.7%. Tsakos Energy too has a healthy track record with respect to earnings – it has delivered positive earnings surprises in three of the last four quarters, with a four-quarter average beat of 51.30%.

The company is expected to report its first-quarter results on May 15.

Frontline Ltd (NYSE: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 +350%. The Zacks Consensus Estimate for first-quarter 2015 earnings is pegged at 4 cents.

The company is expected to report its first-quarter results on May 26.

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