Morgan Stanley Very Positive About 2nd Q Freight Transportation Earnings
MS does not follow YRCW, but they have analysts following logistics firms and expediters; air, rail, truck, and water freight transportation providers. The first page of their July 7, 2014 earnings outlook report is so positive that it might makes sense to put in stop losses now. It's placed below with some highlighting by me.
Note that if a beat by JBHT is underpriced by the market, a beat by YRCW would be greatly underpriced by the market, so what we'll be looking for, if YRCW actually does have net earnings, is for the eps to be above the $.04 expected to at least as high as $.06 That could move YRCW to last year's high of 36.99 on short covering.
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Freight Transportation
2Q14 Earnings Preview – The Quarter of No Misses?
Broad strength in 2Q freight data points suggest risk to 2Q results skews broadly positive. While elevated multiples suggest the buy-side is ahead of sell-side across most freight sub-verticals, we still see opportunities for alpha generation. We provide our thoughts on positioning below.
No miss from any freight transport in 2Q?
Freight transport data points have been strong throughout the quarter (Class I rail traffic, our proprietary TLFI, LTL tonnage, etc.) and, in some cases, actually strengthened. As such, in a complete reversal from our 1Q earnings preview, we believe risk to 2Q results in our coverage universe skews broadly positive.
Buy-side expectations are ahead of sell-side given the significant multiple expansion that occurred at most names in 2Q14; however, we do believe there are opportunities for generating alpha on 2Q results.
What looks relatively inexpensive?
If all transports report in-lineor beat expectations, what stocks are best to own? Considering each transport’s current TMF P/E relative to the S&P500 vs. its 5-yr. avg., 3-yr. avg. as well as vs. 3/31/14 (to capture multiple expansion through 2Q), ECHO, LSTR and JBHT appear least expensive when ranked on these three averages
As such, we believe beats at these names may be underpriced relative to beats at other transports.
Own LTLs on operating leverage to stronger tonnage and pricing.
We believe all LTLs will benefit from accelerating tonnage and pricing growth (due to a second GRI)in 2Q. Given their relatively low LTL segment margins, we believe ARCB and CNW 2Q results can beat expectations by 15-20%, which may not be fully priced into shares at current levels despite strong YTD performance. Strong industry dynamics should also support upside surprises at ODFL and SAIA, but the magnitude of beats will likely be smaller relative to ARCB and CNW given superior margin profiles.
