Deutsche Bank published a note on the LTL (less than truckload) industry Monday, including general comments and advice on how to play the space.
Regarding the industry as whole, Deutsche Bank gave mixed comments.
“While we continue to like the LTLs for their operating leverage, we believe the stocks are largely pricing in the positive yield environment, accelerating volume growth QTD, and tight TL capacity.”
The research note further states that 38 percent year-to-date appreciation indicates that most of the upside is already priced into the security.
Further, “The LTLs are currently trading at 19.1x NTM EPS estimates (six months of 2014 and six months of 2015), which represents a premium to the sector’s average NTM P/E multiple of 15.2x over the past three years.”
Deutsche Bank previously had a Buy rating on Old Dominion Freight Line (NASDAQ: ODFL), but cut the stock to Neutral on valuation. The issue is currently trading at 20 times EPS. This compares to the 11 through 21 times range it has traded in since 2011; the average is 16.3 times earnings.
To add LTL exposure, Deutsche Bank recommends Roadrunner Transportation Systems (NYSE: RRTS). Shares of Roadrunner are up less than six percent year-to--date versus the 38 percent industry average.
The other security specifically addressed is YRC Worldwide (NASDAQ: YRCW), where a Hold rating and $27 price target were reiterated.
“While we see the most potential upside in shares of YRCW if the company can execute its turnaround plan, we expect the operational improvement (inclusive of pricing) to occur over time and remain on the sidelines given valuation.”
Shares of Old Dominion are down 1.7 percent to $63.49, Roadrunner shares are down 0.5 percent to $28.45 and YRC Worldwide shares are 1.3 percent off Thursday's close to $28.75.
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