Shares of United (UAL) surged nearly 5% on Wednesday, one day after the airline giant posted strong first quarter earnings results. Meanwhile, fellow U.S. airline companies also saw their stock prices climb, which might signal that investors are confident about the whole industry as first quarter earnings season really starts to take off.
United posted adjusted first quarter earnings of $0.50 per share, topping our Zacks Consensus Estimates of $0.49 per share. This bottom line beat helped lift United stock, which had sunk more than 13% over the last 12 weeks.
Investors who follow Zacks might have noticed that we pointed out that analysts bumped up their estimates for UAL directly ahead of earnings. Therefore, Zacks noted that United was likely to surpass Q1 earnings estimates, which can lead to an immediate surge in a company’s stock price.
With that said, investors might want to look ahead to see if other airlines are expected to beat earnings estimates soon. We can utilize our Earnings ESP Screener—normally reserved for Zacks Premium customers—in order to search for stocks that are expected to surprise.
This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Let’s check out three airline stocks that are set to report their financial results over the next week to see if an earnings beat might be in store.
Hot Penny Stocks To Buy For 2019: SITO Mobile, Ltd.(SITO)
SITO Mobile is a provider of location-based advertising and mobile messaging platforms that allow brands to launch targeted mobile advertising campaigns. The stock is sporting a Zacks Rank #2 (Buy), and the company has witnessed strong earnings estimate revision activity and is now expected to improve its bottom line by 94% in the current fiscal year.
That earnings growth is projected to come on the back of 25% revenue growth. The company is still expected to be in the red this year, but earnings are estimated to turn positive soon, and EPS expansion is expected to reach an annualized rate of 25% over the next three to five years. Meanwhile, the stock is trading with a respectable P/S ratio of 2.1.
Hot Penny Stocks To Buy For 2019: Codexis, Inc.(CDXS)
While the technology platform isn’t grabbing headlines today, the long-term opportunity presented by enzyme engineering shouldn’t be overlooked by investors. Codexis is a leader in designing biocatalysts, or molecules created from living organisms that increase the efficiency and lower costs of industrial and chemical manufacturing processes. It’s quietly becoming big business for the well-positioned biotech.
In 2017, Codexis grew product revenue 75% from the prior year to nearly $27 million. It raked in enough collaboration revenue to push total sales to $50 million for the first time in company history. The growth stock is just getting started.
Full-year 2018 guidance calls for $60 million to $63 million in revenue at a gross margin of 46.5%. While product revenue is expected to be flat for the year — which was a bit of a disappointment — investors can chalk it up to growing pains for a young technology platform expanding its reach.
Historically, Codexis has only sold its enzymes to improve the efficiency of small-molecule pharmaceutical manufacturing processes. But in the last two years or so, it has expanded into food ingredient manufacturing and DNA sequencing applications. In the near future, it will enter into industrial applications, perhaps in metalworking or leatherworking. It will just take a little time to build a foothold in new industries to enable sustainable growth, so year-over-year numbers could be choppy.
The company isn’t stopping there. While the core business is focused on selling enzymes for improving manufacturing processes, Codexis is beginning partnered clinical trials for an engineered enzyme that could potentially treat the rare disease phenylketonuria (PKU). The fact that it’s not entirely dependent on a biopharma pipeline, and has an incredibly profitable industrial enzyme business, significantly de-risks clinical trials for shareholders.
To summarize, the emergence of machine learning and falling costs of biotech tools are quietly making enzyme engineering easier to apply to a variety of chemical manufacturing processes — and Codexis is one of the only ways to invest in the opportunity today.
Hot Penny Stocks To Buy For 2019: McDonald's Corporation(MCD)
I recommend taking a closer look at “Strong Buy” stock McDonald’s Corporation (NYSE:MCD) . The fast food chain has a top rating from the Street in general, with a $187 average price target (13.6% upside potential). Following a Q1 earnings beat, the Street swooped in with bullish moves: Goldman Sachs added the stock to its Conviction Buy list; BMO Capital ramped up its price target $5 to $195; as did RBC Capital (from $170 to $175).
RBC Capital’s David Palmer explains that “a better business is worth a consumer staple multiple.” Looking around the corner, Palmer anticipates rapid free cash flow (FCF) growth with FCF conversion of 105%+ by 2020. He explains: “Over the next few quarters, we believe digital and delivery initiatives, more effective value marketing, product renovation, improving operational focus, and asset improvements can re-accelerate sales growth.”
Right now McDonald’s is in the process of bringing fresh cooked-to-order beef patties to all of its U.S. restaurants. “They wanted a hotter and juicier Quarter Pounder, and we wanted to deliver it to them,” says MCD’s manager for Michigan and Oregon. Just switching to fresh beef and delivery alone could each bolster same-store-sales growth by as much as 3-4% when fully rolled out.
And what could be juicier than a fresh Quarter Pounder? A top-rated Dividend Aristocrat. MCD boasts a lucrative quarterly dividend payout of $1.01 on a 2.45% yield. Back in September, the board of directors approved a sizable payout increase of 7% — it’s 41st straight dividend increase.
Hot Penny Stocks To Buy For 2019: Ellie Mae, Inc.(ELLI)
Mortgage-industry software provider Ellie Mae also benefits from the enviable combination of high switching costs and the network effect. As the company’s Encompass platform stores tons of data — from leads to loan origination data — anyone who switches away from it would have to retrain their staff and reset their data. Equally important, Encompass connects real estate officers with financiers, title companies, and insurance agents. As more join the platform, it becomes more valuable for current and future users.