Earnings estimates for Covenant Transportation Group (CVTI - Snapshot Report) have been soaring after management recently issued guidance significantly above the consensus for the upcoming third quarter. This sent the stock to a Zacks Rank of 1 (Strong Buy).

While shares of Covenant Transportation have soared too since the announcement, the stock still offers attractive upside potential. Based on current consensus estimates, shares trade at a reasonable 18x forward earnings, which is in-line with the industry.

Covenant Transportation Group, Inc. is a freight transportation and logistics services company. It is the holding company for several operating units, including Covenant Transport, Southern Refrigerated Transport, Star Transportation, Covenant Transport Solutions, Transport Financial Solutions and Transport Enterprise Leasing. These operating units provide service-demanding, truckload and intermodal freight transportation (dry-van and refrigerated), logistics, freight brokerage, factoring services, as well as tractor/trailer sales and leasing.

Strong Q3 Guidance

On September 11, management issued a press release regarding its expectations for the third quarter. Given strong results through the first two months of the quarter, management significantly increased its guidance for Q3.

The company now expects adjusted EPS in the range of $0.35-$0.45. That was well above consensus at the time, prompting analysts to revise their estimates significantly higher.

This sent the stock to a Zacks Rank #1 (Strong Buy).

The Q3 Zacks Consensus Estimate is now $0.36, within guidance. The company is scheduled to report its results on October 21 after the bell.

Strong Earnings Momentum

It's important to note that analysts not only raised their estimates for Q3, but for Q4 and all of 2015 as well. The current 2014 Zacks Consensus Estimate is now $0.82, up from $0.60 before the press release. The 2015 consensus has risen from $0.76 to $1.05 over the same period.

You can see the sharp increase in estimates in the company's "Price & Consensus" chart:

Based on current consensus estimates, analysts are projecting 134% EPS growth this year and 28% growth next year.

Reasonable Valuation

While shares of CVTI have soared since management increased its guidance, the valuation picture still looks reasonable. The stock trades at 18x 12-month forward earnings, which is in-line with the industry median. And the company's enterprise value-to-cash flow ratio is around 8, which is a discount to the industry median of 12.

The Bottom Line

With strong earnings momentum, stellar growth projections and reasonable valuation, Covenant Transportation still offers attractive upside potential.