67 WALL STREET, New York - October 4, 2012 - The Wall Street Transcript has just published its Transportation and Logistics Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: FMCSA CSA Regulations - Regulatory Issues in the Trucking Industry - Trucking Pricing & Capacity Dynamics - Retail and Industrial Transportation Demand - Truckload, LTL, Parcel, Rail and Intermodal - Capacity Constraints Result in Pricing Power
Companies include: United Parcel Service, Inc. (UPS), FedEx Corporation (FDX), CH Robinson Worldwide Inc. (CHRW), Expeditors International of Wa (EXPD), Landstar System Inc. (LSTR), Norfolk Southern Corp. (NSC), CSX Corp. (CSX), Union Pacific Corp. (UNP), Knight Transportation Inc. (KNX), Heartland Express Inc. (HTLD), Greenbrier Companies (GBX), FreightCar America Inc. (RAIL), Ryder System, Inc. (R), Arkansas Best Corp. (ABFS), UTI Worldwide, Inc. (UTIW), Navistar International Corp. (NAV), PACCAR Inc. (PCAR), Cummins Inc. (CMI)
In the following excerpt from the Transportation and Logistics Report, an expert analyst from Jeffries and Company discusses the outlook for the sector for investors:
TWST: What are your favorite names right now?
Mr. Nesvold: I am a big proponent of the railroads right now. When you look at the railroads, I think it's easy to understand why Warren Buffett got so excited about this group several years ago. The barriers to entry are insurmountable. We will never create another Class I railroad in this country again. They tend to be regional duopolies with a significant portion of customers, let's say 30% to 40%, that are captive to one particular railroad. And the antitrust laws are very lenient on this group. As a result, these companies have the ability to raise prices on a nominal basis roughly 4%, if not 5%, year in, year out. Even still, the stocks trade at below-market multiples. And when you think about the barriers to entry for a run-of-the-mill S&P 500 stock versus a Class I railroad, you really can't compare the two.
And then finally, I would say that investor sentiment is very negative right now on the rails, which creates opportunities. Investor sentiment seems to be disproportionately focused on coal. Coal is the largest and most profitable business of the railroads, however, it's not the only business of the railroads. The rails are not coal stocks. In our view, the Class I railroads have done a terrific job managing through the decline in domestic thermal coal. We are now moving into periods of weakness for export and met coal, which could be a bigger headwind.
Our view is there might be an air pocket in 3Q but that these companies will manage through that by 4Q. Meanwhile, by the end of this year, the year-ago comparisons become exceptionally easy, particularly for domestic thermal coal. We think it's a great setup. We'll enter a period of easier comps by year end. Investor sentiment is crowded on the negative side, and the p/e multiples are low at 12 times to 13 times. So in our view, there is little question - this is where we would put incremental capital to work.
TWST: Are there any names you're especially cautious about right now?
For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
- Investment & Company Information