Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis includes Apache (NYSE: APA), EOG Resources (NYSE: EOG), J.B. Hunt Transport Services (Nasdaq: JBHT), Noble Energy (NYSE: NBL) and YRC Worldwide (Nasdaq: YRCW). To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
During the past seven days, two or more brokerage analysts have raised their 2008 forecasts on Apache (NYSE: APA), EOG Resources (NYSE: EOG) and Noble Energy (NYSE: NBL). APA is a Zacks #1 Rank ("strong buy") stock; the other two are Zacks #2 Rank ("buy") stocks.
Cumulatively, 207 full-year earnings estimates for 2008 have been revised upwards on E&P companies during the past four weeks compared to just 65 downward revisions - a Zacks Revision Ratio of 3.18. This very positive change explains why this group has a Zacks Industry Rank of 2.53.
Natural gas has spent very little time below $7.60 this year, with a recent rebound taking it back above $8. The rebound in prices is notable because natural gas prices had been under downward pressure for several months. Clearly, the cold weather throughout the Northern U.S. is playing a role.
The other positive factor is crude. Oil is holding support in the $86-$87 range. As I have said before, the higher prices force brokerage analysts to adjust their models and revise their profit forecasts.
The slowing economy could potentially create some weakness in oil prices, though not enough to cause a significant drop. There is also some scuttlebutt that OPEC could move to lower production in an effort to prop up prices.
All three of the aforementioned companies have yet to report fourth-quarter earnings.
- APA will report on Feb 7. Seven analysts have raised their fourth-quarter expectations within the last 30 days; the consensus calls for earnings per share of $2.39.
- EOG will report on Feb 8. Five analysts have raised their fourth-quarter expectations within the past 30 days; the consensus calls for earnings per share of $1.07.
- NBL will report on Feb 27. Five analysts have raised their fourth-quarter expectations within the past 30 days; the consensus calls for earnings per share of $1.54.
YRC Worldwide (Nasdaq: YRCW) missed fourth-quarter expectations by a wide margin when it reported on Monday. The trucking company earned a penny per share; the consensus estimate had called for profits of 55 cents per share.
YRCW's miss was not completely unexpected. As I said in last Friday's Earnings Preview, the company had previously missed during three out of the past four quarters and fourth-quarter estimates were being revised down. The magnitude of the loss was far worse than what was expected, however.
J.B. Hunt Transport Services (Nasdaq: JBHT) beat expectations. On Tuesday, the company reported fourth-quarter profits of 46 cents per share, seven cents above the consensus estimate.
JBHT differs from YRCW in that it can ship freight via truck and rail. J.B. Hunt's intermodal segment helped to offset weakness in its truck division. JBHT CEO Kirk Thompson described the truck segment as experiencing "one of the worst freight recessions in memory".
So what's going on? The economic environment is clearly having an adverse impact. Fewer shipments create downward pressure on spot rates, which in turn hurts trucking companies. There also continues to be the twin margin pressures of higher energy costs and tough competition. Other trucking companies are eager to keep their trucks rolling and rail is an attractive option for long-haul freight (a factor that helped provided cushion to JBHT's earnings.)
We saw the combination of higher energy costs and tough competition throughout 2007. The slowing economy is a newer hurdle. Even if the economy improves, the trucking industry likely needs a new round of consolidation to improve spot rates.
Because these are broad industry factors, the same headwinds affecting YRCW are adversely impacting other trucking companies.
YRCW is a Zacks #5 Rank ("strong sell") stock. JBHT is a Zacks #3 Rank ("hold") stock.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +32%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129% annually (+5 % vs. +12%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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