Ahead of the first quarter earnings season, many Wall Street analysts warned that the quarter could be the worst since 2009. And while members of the S&P 500 posted a mixed bag of results thanks to hits from broad (like foreign exchange) and narrow (burrito demand), one positive trend did emerge: strength in the transportation sector. According to new research from S&P Capital IQ, transportation-related names comprise five of the ten companies poised to post the biggest full-year earnings growth, with the likes of Southwest Airlines and American Airlines topping the list.
A research note released by S&P Capital IQ Monday reveals transportation companies have benefited from the low price of fuel, and the effects — from helping margins to boosting consumer demand for things like SUVs — will be long-lasting enough to boost transportation companies’ full-year 2015 earnings per share by double-digit percentages. After analyzing companies with market caps of $20 billion or more, S&P found that five of the top six names with the biggest projected earnings growth rates fell in either the airline or automobile subsectors: Southwest, American, General Motors, Delta and Ford.
“Although crude oil prices have recently passed $60 per barrel (based on West Texas Intermediate pricing), prices remain 43% below the peak of $107.26 reached in June 2014,” Michael Thompson, S&P Capital IQ managing director, wrote in the research note. Thompson said that airline margins, in particular, have improved on low oil and fuel prices. “These companies have also benefited from industry consolidation, which has reduced competition and capacity, making it easier for airlines to raise fares and increase passenger yields,” he says. “With expected growth of 38.9%, the transportation subsector–including airlines–is driving the industrial sector’s 6.2% expected growth for 2015.”
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