What Happened?
Shares of freight and logistics provider Covenant Logistics (NASDAQ: CVLG) fell 7.3% in the afternoon session after the company reported third-quarter results that, while meeting Wall Street's expectations, revealed a significant decline in profitability. The freight and logistics provider posted revenue of $296.9 million and an adjusted profit of $0.44 per share, both of which were in line with analysts' consensus estimates. However, the results highlighted underlying weakness, as the company's operating margin fell to 2.7%, a sharp drop from 5.6% in the same quarter last year. This decline in profitability was also reflected in the year-over-year decrease in earnings per share from $0.55. The market's negative reaction suggests investors were more concerned with the company's shrinking margins and weaker earnings than with its ability to meet estimates.
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What Is The Market Telling Us
Covenant Logistics’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago when the stock gained 10.1% on the news that the major indices popped (Nasdaq +3.4%, S&P 500 +2.5%) in response to the positive outcome of U.S.-China trade negotiations, as both sides agreed to pause some tariffs for 90 days, signaling a potential turning point in ongoing tensions. This rollback cuts U.S. tariffs on Chinese goods to 30% and Chinese tariffs on U.S. imports to 10%, giving companies breathing room to reset inventories and supply chains. However, President Trump clarified that tariffs could go "substantially higher" if a full deal with China wasn't reached during the 90-day pause, but not all the way back to the previous levels. Still, the agreement has cooled fears of a prolonged trade war, helping stabilize expectations for global growth and trade flows and fueling renewed optimism. The optimism appeared concentrated in key trade-sensitive sectors, particularly technology, retail, and industrials, as lower tariffs reduce cost pressures and restore cross-border demand.
Covenant Logistics is down 25.1% since the beginning of the year, and at $20.14 per share, it is trading 33.6% below its 52-week high of $30.33 from November 2024. Investors who bought $1,000 worth of Covenant Logistics’s shares 5 years ago would now be looking at an investment worth $2,318.
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