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UAL vs. CSX: Which Stock is Poised for Better Q1 Earnings?

Zacks

The Q1 earnings season is in the nascent stage with a handful of S&P 500 participants having reported results so far. In fact, this reporting cycle has started on a strong note courtesy of earnings beats from big names in the banking space like JPMorgan Chase & Co. JPM. The current week is also going to be a busy one with several companies reporting their quarterly results. This week alone will see 156 companies, including 53 S&P 500 participants, revealing their Q1 numbers.

In fact, the projection for Q1 earnings season is very encouraging. Per the latest earnings preview, the bottom line for S&P 500 companies is expected to expand at a highly impressive rate of 16.6% on a year-over-year basis. Total revenues for the same set of companies are projected to grow 7.5%. The report further predicts that 14 of the 16 Zacks sectors will end the Q1 earnings season with the bottom line improving year over year. Out of which, 11 are anticipated to exhibit double-digit earnings growth.

One of those sectors is the transportation sector, wherein earnings are anticipated to increase 15.4%. Notably, this highly diversified sector includes airlines and railroads, among others. We believe that the favorable economic indicators along with promising fiscal and regulatory policies from the current administration bode well for the sector.

Already, the transportation sector has seen one of its key members — Delta Air Lines Inc. DAL — reporting better-than-expected earnings per share and revenues in Q1. However, high fuel costs contributed to a year-over-year decline in earnings. The trend is likely to continue through the current reporting cycle as fuel costs are on the rise and expenses pertaining to fuel represent one of the major input costs for any transportation company.


Of late, oil prices have been on an uptrend and were up approximately 8% in the Q1 (January-March) period. In fact, the first quarter of 2018 witnessed U.S. oil benchmark reach its highest settlement since December 2014.

Given this backdrop, investors should keenly await earnings reports of key transportation companies — the Jacksonville, FL- based railroad operator, CSX Corporation CSX and the Chicago-based airline heavyweight, United Continental Holdings, Inc. UAL — on Apr 17.

UAL vs. CSX

We have assessed these transportation companies on the following parameters.

Price Performance

In the first quarter of 2018, United Continental clearly outpaced CSX in terms of price performance. United Continental rallied 3% compared with CSX’s 1.2% rally.

ESP and Earnings History

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

United Continentalis likely to beat earnings in the quarter to be reported. This is because the stock has an Earnings ESP of +2.50% and a Zacks Rank #3. Previously too, our model conclusively showed an earnings beat as the Earnings ESP was +7.00% with a same Zacks Rank (Read more: United Continental's Q1 Earnings: A Beat in the Cards?)

However, the picture is opposite for CSX as it has an Earnings ESP of -1.71% and a Zacks Rank of 3. (Read more: CSX to Report Q1 Earnings: What's in Store for the Stock?)

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Even with respect to earnings surprise history United Continental holds the edge over CSX. This is because the airline has managed to surpass the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 4.6%. On the other hand, CSX outpaced the consensus mark in three of the past four quarters by an average of 10.3%.

Projected Earnings Growth

We expect year-over-year earnings growth for the soon-to-be-reported quarter to be 29.4% for CSX, higher than 22.5% for United Continental.

Bottom Line

Our comparative analysis shows that United Continental is poised for a better first quarter, as the company clearly scores higher than CSX with respect to most of the considered parameters.

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