Gediminas Jasionis

Covenant Transportation Group, Inc. (NASDAQ:CVTI) Influenced By Weak Market

by Gediminas Jasionis July 19, 2010
CVTI_chart.jpgCovenant Transportation Group, Inc. (NASDAQ:CVTI, CVTI message board) showed the first signs of weakness on Friday, as the stock price declined upon announcement of earnings release timing.

Usually, high liquidity stocks remain still in anticipation of quarterly results, but the first signs of weakness formed for Covenant. The 3.4% decline on this stale stock was influenced by a heavy decline in broad market indexes. It also demonstrated the slight transition from neutral to negative sentiment towards the upcoming quarterly results.

The company didn't provide guidance on the possible results, but earlier announcements projected profits above analyst estimates for the full 2010 . Analysts on average predict 13.7% sales growth for the June quarter. Such earnings would break the line of three consecutive quarters, when sales were stalling at around $154 million and would likely cause the stock valuation to increase.

ctglogo1.jpgNegative surprises on analyst estimates were recorded in three quarters out of the most recent four according to Yahoo. This makes the calculations of Q2 results questionable as well. Despite preceding price rally, the stock still trades at considerably low level based on P/S of 0.2, waiting for improvement in the results. Even in the event of missed estimates, the price should not go down too much.

We have support areas at $8 and $7.50, and on the longer term basis prices shouldn't go lower than $5 per share, where consolidation occurred in the second half of 2009.

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