Will Rising Costs Hurt Expeditors (EXPD) In Q4 Earnings?

Expeditors International of Washington, Inc. (NASDAQ:EXPD) is slated to report fourth-quarter 2017 results on Feb 20, before the market opens.

Last quarter, the company performed impressively posting better-than-expected earnings and revenues. The bottom line increased 12% on a year-over-year basis. Results were aided by higher revenues. The top line also increased 15% from the year-ago figure. Growth was witnessed across all major divisions of the company.

Let’s see, how things shape up for this announcement.

Factors Likely at Play

High operating expenses are likely to hurt Expeditors’ bottom line in the fourth quarter. In terms of enterprise value (EV) to EBITDA ratio, the stock appears overvalued compared with the market at large. The company has a trailing 12-month EV/EBITDA ratio of 13.5, ahead of the S&P 500 index's 10.7.

However, volume growth across the company’s primary divisions might buoy its earnings results in the to-be-reported quarter.

The company is anticipated to witness substantial growth across all its segments, boosting the quarterly top line in turn.

The company’s efforts to reward shareholders through dividends and share buybacks are also encouraging. An update on this is expected on fourth-quarter conference call. Expeditors might hike its dividend payout, particularly with the advent of the new tax law, which should aid the company significantly.

Its sound balance sheet is a further positive. The company’s asset-light business model allows it to maintain a debt-free, stable financial position.

What Does Our Model Say?

Our proven model does not conclusively show that Expeditors is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as highlighted below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Expeditors sports a Zacks Rank #1, which increases the predictive power of ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks ESP: Expeditors has an Earnings ESP of -2.62%, which acts as a spoiler as the company needs a positive ESP to be confident about an earnings surprise. Hence, this combination leaves surprise prediction inconclusive.

Conversely, we caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Investors interested in stocks worth considering from the broader Transportation sector may check out the following companies with the right combination of elements to beat estimates in the next releases:

Atlas Air Worldwide Holdings (NASDAQ:AAWW) has an Earnings ESP of +0.48% and a Zacks Rank #2. The company will report fourth-quarter financial numbers on Feb 22.

Copa Holdings, S.A. (NYSE:CPA) has an Earnings ESP of +1.84% and a Zacks Rank #3. The company is scheduled to release fourth-quarter results on Feb 21.

LATAM Airlines Group S.A. (NYSE:LTM) is a Zacks #2 Ranked player. The company has an Earnings ESP of +13.64% and is slated to announce fourth-quarter earnings on Mar 14.

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