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Deutsche Bank Sees Knock-on Effect From Florence For Transportation Stocks

FreightWaves

Hurricane Florence is providing a catalyst to transportation stocks as investors bet on the storm causing a near-term spike in demand across the U.S. Southeast.

To be sure, the storm has yet to make landfall and its actual impact remains unknown. Moreover, non-profit groups such as the American Logistics Aid Network are already looking to help coordinate and supply transportation services to affected areas.

Nonetheless, the impending approach of Florence is providing some uplift to the transportation sector. The Dow Jones Transportation Index is up 3.5 percent since Monday.

Deutsche Bank said in a research report that "concerns around truck supply from the rising severity of Hurricane Florence" are helping lift transportation industry names.

"While we hope the storm weakens significantly and quickly, major weather events can have a significant impact on transportation supply/demand dynamics – particularly for trucking companies," Deutsche Bank said.

A similar pattern played out during last year's major weather events. Deutsche Bank says that spot rates in the period following Hurricane Harvey and Irma last year saw trucking spot rates increase 9 percent. But Deutsche Bank notes that the impact could be even more severe due to higher population density of Eastern Seaboard relative to areas impacted last year.

"We note that roughly 40 percent of the U.S. population lives on the east coast, which means Hurricane Florence could have a disproportionate impact on supply chains relative to previous storms," Deutsche Bank said.

The immediate near-term impact stems from inventory restocking as residents in North and South Carolina and Virginia strip store shelves.

Werner Enterprises, Inc. (NASDAQ: WERN) saw its shares rise over 9 percent on Monday, a move which may stem from the carrier's exposure to retailers such as Dollar General and Dollar Tree, Deutsche Bank said. Werner's shares have since slid 4.5 percent

But Deutsche Bank says Knight-Swift Transportation Holdings, Inc. (NYSE: KNX) and Landstar Systems, Inc. (NASDAQ: LSTR) are "the most exposed" to any Florence-related uptick in transportation activities. Knight-Swift shares are up 2.8 percent this week while Landstar shares are up 4 percent.

"While we sincerely hope Hurricane Florence weakens significantly over the next several hours, we will continue monitoring the situation given its potential impact to U.S. transportation companies," Deutsche Bank said. 

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