Swift Transportation — How to Play Monday’s Earnings Report

by Jamie Dlugosch | October 3, 2011 8:16 am

Investors will get an early read on third-quarter earnings when transportation company Swift Transportation (NYSE:SWFT[1]) reports earnings for the quarter ending Sept. 30, 2011 on Monday. The report also will give investors a look at economic activity in the period.

Overnight shipper FedEx (NYSE:FDX[2]) previously reported results that included lower guidance for the future. There is no doubt that fear of economic decline is high at the moment. Actual results will be helpful to separate myth from reality.

Transportation companies are said to be leading indicators of economic activity. If results fail to meet expectations or include downward guidance, it would not bode well for the rest of the market. The market currently is not optimistic as trucking stocks — including Swift — have been hit hard during the recent correction.

Swift Transportation has missed Wall Street estimates by a small amount in the past two quarters:

Chart1 Swift Transportation    How to Play Monday's Earnings Report[3]

Those two small misses come on the heels of the company greatly exceeding expectations in the quarter ending Dec. 31, 2010. Despite the fear in the market, Swift appears to be chugging along from an operating perspective. In the June quarter, the company withstood higher fuel prices. This quarter, the worry will be economic activity.

For the current quarter, the average Wall Street estimate for the company is 22 cents per share. That number is well below the 26-cent-per-share estimate 90 days ago. For the full year, the company is expected to make 69 cents per share. That number is expected to jump 29% in the following year to 89 cents per share. At current prices, Swift Transportation trades for just nine times current year estimated earnings.

Shares of Swift fell off a cliff in July. The stock is down more than 50% since that time:

Chart2 Swift Transportation    How to Play Monday's Earnings Report

The recession of 2008 resulted in bankruptcy for Swift Transportation. After reorganizing, the company emerged from bankruptcy with a stronger balance sheet. Shares of Swift drifted higher after becoming available to investors in late 2010 but hit a brick wall in July.

Fears of a recession spooked investors in Swift; however, it would seem unlikely that a recession would cripple the company as before. Wall Street estimates for the company have been reduced dramatically, but economic data, including Friday’s Chicago PMI report[4], do not indicate a recession is imminent.

Selling in this stock is way overdone. With this stock down more than 50% in such a short period of time, any good news could result in a sharp recovery. I expect a good report from Swift and shares to rally as a result.

Other companies reporting results this week include: Yum! Brands (NYSE:YUM[5]), Costco (NASDAQ:COST[6]), Marriott International (NYSE:MAR[7]), Monsanto (NYSE:MON[8]), Ruby Tuesday (NYSE:RT[9]) and Constellation Brands (NYSE:STZ[10])

Endnotes:
  1. SWFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=SWFT
  2. FDX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDX
  3. [Image]: http://investorplace.com/wp-content/uploads/2011/10/Chart1.jpg
  4. Chicago PMI report: http://www.marketwatch.com/story/chicago-pmi-moves-up-to-604-in-sept-2011-09-30
  5. YUM: http://studio-5.financialcontent.com/investplace/quote?Symbol=YUM
  6. COST: http://studio-5.financialcontent.com/investplace/quote?Symbol=COST
  7. MAR: http://studio-5.financialcontent.com/investplace/quote?Symbol=MAR
  8. MON: http://studio-5.financialcontent.com/investplace/quote?Symbol=MON
  9. RT: http://studio-5.financialcontent.com/investplace/quote?Symbol=RT
  10. STZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=STZ

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