Market Overview

Covenant Transportation Beats Estimates In 'Strong' Freight Market, Stifel Says In Upgrade

Covenant Transportation Beats Estimates In 'Strong' Freight Market, Stifel Says In Upgrade

Covenant Transportation Group, Inc. (NASDAQ: CVTI) reported first-quarter results Tuesday that showed a 9.3-percent increase in total revenue and net income of 24 cents per share. The company guided to meaningful year-over-year improvements in earnings per share for each quarter of 2018.

The Analyst

Stifel analyst David Ross upgraded Covenant Transportation from Hold to Buy and nudged up the price target from $34 to $35.

The Thesis

The earnings beat came due to improved operating profitability at all asset-based trucking segments amid better pricing and  a right-sized trailer fleet, Ross said in a Wednesday note. The Chattanogga, Tennessee-based company will benefit from a strong freight market this year, the analyst said. 

Yield, which accelerated in Q1, is likely to grow in high-single digits throughout the rest of the year, with Covenant indicating the second-quarter will potentially show the strongest comp, Ross aid. 

"Most of the company's 2018 contract rate increases take effect this quarter," the analyst said. 

Utilization is expected to improve into Q2 due to an increased unseated truck count, according to Stifel. 

Stronger yields and continued operational improvements led to a 420 basis point year-over-year improvement in operating ratio, Ross said. Covenant's operating ratio is forecast to improve throughout the year as truckload capacity remains tight and rates tick higher, he said. 

Stifel expects debt levels to continue to decline in a strong market environment.

Citing the Q1 outperformance, Stifel raised its 2018 and 2019 earnings per share estimates from $1.64 and $2.14, to $1.75 and $2.30, respectively.

The Price Action

Covenant Transportation shares have lost about 1 percent in the year-to-date period. The stock was down 4.22 percent at the time of publication Thursday at $27.26. 

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Latest Ratings for CVTI

May 2020Stephens & Co.UpgradesEqual-WeightOverweight
May 2020StifelUpgradesHoldBuy
Oct 2019Stifel NicolausDowngradesBuyHold

View More Analyst Ratings for CVTI
View the Latest Analyst Ratings


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