US transport: MS prefers "untouchable" truckers over "unstoppable" railroads

US Xpress Enterprises

09/10/2018 13:12

** Morgan Stanley still prefers "untouchables" truckload
companies due to relatively lower valuations and stays cautious
on "unstoppable" railroads on expectations of mixed Q3
    ** MS notes about 1/4th of its 23-company coverage universe
is at trough low-teen PE valuations, with most of them truckers,
while the rest are trading above high-teen or even at 20x levels
    ** On railroads, MS expects same "investor thirst" for
cyclical defensives, domestic macro exposure and idiosyncratic
stories to continue, unless "valuation fatigue" sets in
    ** Canadian Pacific  CP.TO  has already reported a profit
beat  urn:newsml:reuters.com:*:nL4N1WK2R5; MS expects CSX Corp  CSX.O  to also beat, and
says estimates on Union Pacific  UNP.N  may have been lowered a
bit too much after its recent operations overhaul plan
 urn:newsml:reuters.com:*:nL2N1W4154
    ** But MS expects CN Rail  CNR.TO , Kansas City Southern
 KSU.N  and Norfolk Southern  NSC.N  to miss on weak volumes
    ** MS expects a strong Q3 for truckload companies, but says
focus will be on Q4/peak season and 2019 outlooks to set the
future trajectory for the stocks
    ** Sees Werner Enterprises  WERN.O , Schneider National
 SNDR.N , Heartland Express  HTLD.O , Old Dominion Freight Line
 ODFL.O , ArcBest  ARCB.O  beating estimates
    ** Expects a miss at US Xpress's  USX.N , saying the Street
is "mismodelling" Q3, and forecasts an in-line quarter for
Knight-Swift  KNX.N  before a strong pick up Q4 onwards
    ** The Dow Jones Transport index  .DJT  is up 5.6 pct YTD
only due to a ~10 pct jump from July-Sept; the index fell from
Jan-June and is down since Q4 started in Oct
    ** DJT's move has diverged with Dow Jones Industrial Average
 .DJI , which can signal growing market instability  urn:newsml:reuters.com:*:nL2N1WL1L4

 (Reporting by Savio D'Souza)
 ((RM:savio.dsouza.thomsonreuters.com@reuters.net))