Swift Transportation — How to Play Monday’s Earnings Report

Investors will get an early read on third-quarter earnings when transportation
company Swift Transportation (NYSE: SWFT ) 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 ) 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: 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: 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 , 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 ), Costco (NASDAQ:
COST ), Marriott International (NYSE: MAR ), Monsanto (NYSE: MON ), Ruby Tuesday
(NYSE: RT ) and Constellation Brands (NYSE: STZ )