Transportation Sector Stock Winners and Losers From an All Star Analyst: a Wall Street Transcript Interview with Peter Nesvold, Managing Director at Jefferies & Co.

Wall Street Transcript

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: Please start with a snapshot of your coverage universe.

Mr. Nesvold: Our team's coverage encompasses more than 30 stocks across two sectors, transports and autos. Within the transports, we cover 20 stocks in four subsectors - first, airfreight and logistics, including the parcel carriers UPS (UPS) and FedEx (FDX), as well as logistics names like C.H. Robinson (CHRW), Expeditors (EXPD) and Landstar (LSTR); second, the Class I rails such as Norfolk Southern (NSC), CSX Corporation (CSX) and Union Pacific (UNP); third, truckload carriers like Knight Transportation (KNX) and Heartland Express (HTLD); and fourth, transportation equipment, which includes Greenbrier (GBX), FreightCar America (RAIL) and Ryder (R).

TWST: With a fairly broad group, do you have an overall outlook that applies to your coverage universe, or does it differ significantly depending on the subsector?

Mr. Nesvold: One of the things that I love about covering transports is that there's always something to do. Transportation isn't really a single sector. One could argue that it's really an equity cycle of four subsectors - trucks, parcel, the rails and logistics. Trucks tend to be the shortest-cycle indicators and the earliest-cycle movers within the group. The parcel stocks are frequently midcycle movers. The rails are typically late expansionary period stocks. And the logistics stocks historically have been countercyclical names.

The question we ask ourselves, then, is: Where are we in the cycle? We approach this question by interpreting dozens of freight data series, as well as our proprietary channel checks. And our conclusion has been that a large number of short-cycle indicators began weakening sharply starting in early August and continued to deteriorate at an accelerating rate into September.

Our signature freight indicator is weekly diesel consumption out of the Department of Energy. We found that to be an unusually strong indicator of industrial production and truck freight on almost a real-time basis. When we combine the rollover in diesel consumption with our channel checks, it's become increasingly clear to us that the year-over-year growth in truckloads started to flatten out midsummer, and that spot rates started to decline roughly 2% to 5%. Usually, a slowdown in truck freight is a precursor to a slowdown in other modes. This seems to be playing out. Airfreight is a more recent example. As a result, we believe that the entire freight cycle is starting to top out, which would support moving into later-cycle names. Right now, we're most focused on the railroads, although the countercyclical logistics names are starting to come into focus.

TWST: How would you describe current investor interest in transportation stocks, and how are valuations trending?

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.

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