What happened

Covenant Logistics (CVLG -0.08%) has been a rare standout stock in a difficult market, with shares up more than 60% in the 12 months leading up to the company's late-Wednesday earnings release. But those earnings weren't quite what investors had hoped for, and shares of Covenant have fallen as much as 19% on Thursday as a result.

So what

Covenant has been a standout transportation stock, getting on the radar of a lot of investors in 2022 thanks to strong results and a commitment to returning the cash it is generating to shareholders. The company has repurchased nearly 20% of its shares outstanding since 2019.

But the recently completed fourth quarter didn't quite live up to Wall Street expectations. Covenant reported earnings of $0.81 per share according to generally accepted accounting principles (GAAP) and non-GAAP earnings of $1.37 per share, short of the consensus $1.41-per-share estimate. Covenant said that the difference relates to an early lease abandonment and disposal charge and excess equipment expense.

The company generated more than $1 billion in freight revenue for the year and a 15.3% return on average invested capital. But CEO David R. Parker said that fourth-quarter results "undoubtedly reflect sequential softening in the freight market, continued inflationary pressure, and the cost of significant excess equipment."

Now what

Market conditions are not expected to improve anytime soon. Parker said, "We anticipate a very difficult freight environment for at least the first half of the year, which could compress rates and margins when compared to 2022."

Covenant has built a strong and resilient operation and is well positioned to weather these storms. But until the market improves, there are limits to what management can do to boost the business. It appears Covenant is in the early stages of a long uphill climb, and investors seem to be looking elsewhere as a result.