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Zacks Investment Ideas feature highlights: Southwest Airlines, Norfolk Southern and Canadian Pacific Railway

    Zacks Investment Ideas feature highlights: Southwest Airlines, Norfolk
                    Southern and Canadian Pacific Railway

PR Newswire

CHICAGO, Jan. 17, 2014

CHICAGO, Jan. 17, 2014 /PRNewswire/ --Today, Zacks Investment Ideas feature
highlights Features: Southwest Airlines Co. (NYSE:LUV-Free Report), Norfolk
Southern Corporation (NYSE:NSC-Free Report) and Canadian Pacific Railway
Limited (NYSE:CP-Free Report).


Wheels Roll in Transportation, 3 Stocks Set to Beat

In the wake of the World Bank's revised outlook on the global economy, we are
hopeful that the fourth quarter results of the U.S. stocks will bring the mojo
back for investors, who have otherwise endured significant volatilities
throughout 2013. Further, encouraging U.S. retail data that uplifted the
greenback leaves little scope for any pessimism going forward.

The transportation sector too will benefit from the broader optimism and we
look forward to outperformance by some of its stocks. Not only does the
current momentum in the macro economy work in favour of these stocks, the
industry fundamentals also continue to improve. From a modest beginning to a
strong third quarter, these stocks have proved their mettle, driving us to
crown them as our top picks.

Why Transportation is an Attractive Bet?

While fourth quarter results are underway, we are yet to see the major actions
in Transportation with only 9.1% of the sector participants having reported.
Overall, the sector is expected to register a double-digit (17%) earnings
improvement, stemming from steady growth in airlines and railroad stocks.

According to the International Air Transport Association (IATA), the 2014
outlook on the global airline industry looks promising with profitability
estimated at $16.4 billion on a passenger count of 3.30 billion. Net profit
margin is also expected to grow 2.2%. Economic recovery and the resultant
surge in air travel demand, disciplined capacity and many new and enhanced
ancillary revenue opportunities would contribute to growth this year.

Railroads' operating performance too seems to have bounced back amid coal woes
thanks to operational efficiency, increased market demand for intermodal
services as well as shipment of key commodities like petroleum products,
automotives and grain crop.

In such a scenario, it might be a good idea to zero-in on a handful of
transportation stocks that are poised to beat earnings estimates this quarter.
An earnings surprise should help these stocks outperform in the near term.

How to Find a Top Pick

Stock diversity in the transportation arena could muddle up your picking
power. An easy way to narrow down the list for your portfolio is to take a
look at stocks with solid Zacks Rank and favorable Zacks Earnings ESP.

Earnings ESP is our proprietary methodology for determining stocks having the
best chance to surprise with their next earnings announcement. The earnings
ESP shows the percentage difference between the Most Accurate estimate and the
Zacks Consensus.

The combination of a positive to neutral Zacks Rank – Zacks Rank #1 (Strong
Buy) or 2 (Buy) or 3 (Hold) – and a positive earnings ESP, is usually a
harbinger of earnings beat.

For investors seeking to benefit by applying this strategy, we have chosen
three transportation stocks that we believe will exhibit significant upward
potential following their upcoming earnings announcement.

Southwest Airlines Co. (NYSE:LUV-Free Report): Dallas-based Southwest Airlines
provides low cost passenger air transportation services in the U.S. It
primarily provides short-haul, high frequency, point-to-point airline services
covering many secondary or downtown airports such as Dallas Love Field,
Houston Hobby, Chicago Midway, Baltimore/Washington International, Burbank,
Manchester, Oakland and SanJose. In May 2011, Southwest completed the
acquisition of AirTran Holdings, which now operates as a wholly owned
subsidiary under the name AirTran Airways. As of Sep 30, 2013, Southwest
operated 696 Boeing aircraft and served 97 destinations along with AirTran.

The Zacks Consensus Estimates for fourth-quarter is 28 cents, representing
robust growth over the year-ago quarter. The company registered an average
earnings surprise of 41.40% over the trailing 12 months.

The company presently carries a Zacks Rank #1 and has an earnings ESP of
+7.14%. Southwest Airlines is set to report its fourth quarter results on Jan
23, before the opening bell.

Norfolk Southern Corporation (NYSE:NSC-Free Report): Headquartered in Norfolk,
Virginia, Norfolk Southern Corp. owns a major freight railroad Norfolk
Southern Railway, which also represents a Class I railroad in the U.S. The
company operates over 20,000 route miles across 22 Eastern states in the U.S.
The company offers rail transportation of commodities like coal and other raw
materials, intermediate products and finished goods. It also offers
comprehensive logistics and most extensive intermodal services on the Eastern
part of the U.S. and caters to overseas freight through several Atlantic and
Gulf Coast ports.

The Zacks Consensus Estimate for the fourth quarter is $1.50. This represents
a year-over-year improvement of 15.7%. The company delivered average earnings
surprise of 5.01% over the trailing 12 months.

Norfolk Southern has an earnings ESP of +0.67% and retains a Zacks Rank #3
(Hold). The company is slated to release its fourth quarter results on Jan 22.

Canadian Pacific Railway Limited (NYSE:CP-Free Report): Based in Calagary,
Alberta, Canadian Pacific is another Class I railroad that provides rail
freight transportation services to the principal business centers of Canada
from Montreal to Vancouver, as well as the U.S. covering major cities like
Chicago, New York City, Detroit and Minneapolis. The company has extended its
network through collaborations with other Class I railways in North America,
which allows it to provide services and access to markets across North America
beyond its own rail network.

Currently, the Zacks Consensus Estimate for fourth-quarter is $1.87 with
growth expectation of 46.3% from the prior-year quarter. The company boasts an
average earnings surprise of 1.49% over the trailing 12 months.

Canadian Pacific currently holds a Zacks Rank #3 and has an earnings ESP of
+1.60%. The carrier is slated to report its fourth quarter financial results
on Jan 29, before market opens.

Moving Forward

Conscious efforts to turn around are evident in the economy at large. The
transportation sector is also riding on the upturn with palpable improvements
in the fundamentals of airline and railroad stocks.

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SOURCE Zacks Investment Research, Inc.

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