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February 01, 2010 at 02:00 AM
Thomas R. Wadewitz
J.P.Morgan
212-622-6461
[email protected]
We continue to have a broadly constructive view of transports based on our expectation of growth in the economy and in transport volumes in 2010. Our sense is that there is room for stronger-than-expected volumes to drive upside in EPS for many of the transports.
We have favorable views on the parcel, truckload, and railroad groups while we remain cautious on the non-asset and the less-than-truckload freight delivery or LTL groups.
Parcel names present the most compelling opportunity. We believe that UPS and FedEx (FDX) are among the most compelling transports because they should both realize significant operating leverage as volumes improve and improving weight/piece and product mix should also support strong margins. UPS is also interesting in the sense that it appears to reflect generally low expectations.
Pieces are in place for a significant turn in the truckload market. While pricing may only be modestly positive in 2010, we expect rising utilization to drive improved EPS performance for the truckload group.
We believe that Knight Transportation (KNX) and Werner Enterprises (WERN) are attractive truckload names to own. We also expect improvement in the intermodal market, and we continue to believe that reward to risk for J.B. Hunt Transport Services (JBHT) is compelling.
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William H. Fisher, CFA
Raymond James & Associates
404-442-5858
[email protected]
FedEx (FDX) reported previously released F2Q EPS (November) of $1.10, including a ~$0.05 self-insurance gain. As inferred in its earlier release, international priority (IP) volumes surged, rising 5.8% with domestic overnight boxes rising 6.3%. Inventory restocking, shipments of small electronic goods, and market share were catalysts. Not only has FDX (rated Market Perform 3) gained share from DHL’s domestic departure, we believe it is also gaining on international volume.
