FBR Capital analyst Christian Wetherbee has been quite busy today, initiating coverage on 14 stocks across the transporation universe, including trucking firms, dry bulk shippers, and railroad companies.
Let’s see if I can break this down for you:
Trucking firms: While volume has improved for firms that run fleets of trucks to make deliveries, prices are still threatened by the persistance in the market of YRC Worldwide (YRCW), which makes “less than truckload” shipments in competition with Fedex (FDX), United Parcel Service (UPS), and others. “The survival of YRC has preserved significant market capacity, prolonging improvements in pricing as volumes build,” writes Wetherbee. At 31 times projected earnings, the stocks of trucking firms, on average, are counting on a return to “normalized” earnings too soon, he writes. Wetherbee’s only buy recommendation is C.H. Robinson (CHRW), a $9 billion firm based in Eden Prairie, Minnesota. Robinson, is a “long term” winner that should enjoy rising freight volume but that is trading below its historical P/E average, writes Robinson.
Dry-Bulk Shipping: The business is going to be under pressure this year and next as the orders out there for new vessels to be delivered represent 60% of the current ship capacity already operating. That means a huge overhang of supply now and for the foreseeable future, Wetherbee notes, and that will offset the rising trade from China, which now represents, amazingly, over one third of total shipment volume in dry bulk. Wetherbee, nevertheless, has three “Outperform” stocks to offer, Genco Shipping and Trading (GNK), Navios Maritime Holdings (NM), and Safe Bulkers (SB), with Eagle Bulk Shipping (EGLE) rated “Market Perform.” Navios is the best bet, he writes, as the company has a franchise business that sets it apart, and given that its stock in recent trading has started to escape the normal correlation with the Baltic Dry Index, a common benchmark for activity in the sector.
Railroads: The stocks could be in for their 10th consecutive year of outperforming the S&P 500, given that earnings appear poised to explode this year on recovering freight volume and stable costs. “We expect volumes in 2010 to recover 5.3% year over year,” writes Wetherbee while our analysis indicates that up to 40% of the rails� cost cuts will be at least semi-permanent, driving a 50.6% incremental operating ratio in 2010 and leading to 17% operating profit growth.” Wetherbee started CSX (CSX), Kansas City Southern (KSU), and Union Pacific (UNP) with “Outperform” ratings.
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