Transportation and Automotive Sector Ideas

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Rail and Trucking sectors -- >>> Profits Flow From Southeast Logistics Hubs



By Arturo Cuevas

May 28, 2013

Tickers: CSX, JBHT, NSC, ODFL



http://beta.fool.com/darttanyan001/2013/05/28/profits-flow-from-southeast-logistics-hubs/35091/?source=eogyholnk0000001



Investing opportunities in logistics seem ripe these days. Indications are that people are now getting more inclined to spend, and thus, more goods need to get moving. Among the recent indicators of zealous U.S. consumer sentiment came from a Thomson Reuters/University of Michigan preliminary assessment for May. It showed that overall, the index of consumer sentiment rose in early May to its highest level in almost six years at 83.7; this benchmark was at 76.4 in April.

Added confidence can be drawn from expectations at Fannie Mae that the U.S. economy shall re-accelerate in this year’s second half with the labor sector regaining traction. The mortgage-finance company foresees 2.2% overall growth in 2013, thus improving on the modest 1.7% growth achieved in 2012.

Play with trucks and trains

The hot trail on logistics now currently leads to southeastern U.S., according to a DC Velocity report, These “logistics hotspots” are home grounds for rail company CSX (NYSE: CSX), headquartered in Jacksonville, FL. Another large railroad firm, Virginia-based Norfolk Southern (NYSE: NSC), has several major installations in Georgia.

The U.S. Southeast is also abode for the trucking mogul, J.B. Hunt Transport Services (NASDAQ: JBHT), based in Lowell, AR. Another trucking giant, Thomasville, NC-based Old Dominion Freight Line (NASDAQ: ODFL), likewise has much of its fortunes staked in the Southeast, specifically in its Piedmont-Triad, NC domain.

Hospitable business environment

Per the DC Velocity report, operating from and within this region provides several advantages, one of which is its population density, estimated to constitute 45% of the population in the U.S. Competitiveness in freight costs is definitely a plus, with the Southeast boasting of a robust supply chain infrastructure anchored on efficient connectivity of rail, highways, and seaports. Industrial peace is likewise an attraction, as the Southeast is largely non-union. Moreover, relatively abundant commercial-industrial real estate and state incentives for businesses locators make the Southeast hospitable to logistics operators.

These advantages can best be seen in CSX, whose Jacksonville home base has a strategic seaport. This is but one component to the company’s 21,000-mile transport network which also links to the Southeast ports in Miami, Savannah, GA, and Charleston, SC. All told, CSX has 70 port terminals not only along the Gulf and Atlantic Coasts, but also at the Mississippi River and the Great Lakes-St. Lawrence Seaway.

Strong financials

CSX’s solid foundation in the Southeast was manifest in its record 2013 first-quarter operating income of $875 million. Net income for the quarter rose to $459 million, or $0.45 per share, from $449 million, or $0.43 per share, a year earlier. The slowdown in the company’s coal business was offset by advances in other segments such as those from intermodal and merchandise, resulting in $3 billion in revenue for this year’s first quarter.

Like in CSX, coal shipments at Norfolk Southern were sluggish during the 2013 first quarter, but it nonetheless achieved higher earnings on the strength of goods transport and intermodal revenue. Norfolk earned $450 million, or $1.41 per share, for the quarter, up 10% from $410 million, or $1.23 per share, in the 2012 first quarter. A non-recurring $60 million gain, or $0.19 per share, was included in the 2013 first-quarter results.

J. B. Hunt Transport, likewise, had a strong 2013 first quarter, increasing its operating revenue by 11% to $1.29 billion from $1.1 billion a year earlier. Net earnings in its most recent quarter rose year over year to $73.3 million, or a diluted EPS of $0.61, from $67.7 million, or $0.57 per diluted share.

Old Dominion Freight’s 2013 first quarter was robust too, as the company posted a 30.4% increase in net income to $40.6 million from the $31.1 million reported a year-earlier. Its diluted EPS rose 30.6% to $0.47 from $0.36 in the previous year’s first quarter. Revenue for 2013's first quarter rose 7.1% year over year to $532.6 million from $497.1 million.


Which has the hotter ride, trains, or trucks?



Metrics


CSX


Norfolk Southern


J.B. Hunt Transport


Old Dominion





P/E ratio


14.44


14.41


28.86


20.68




Annualized dividend


$0.56


$2.00


$0.60


N/A




Current yield


2.14%


2.49%


0.80%


N/A


Given the above metrics culled from NASDAQ, CSX and Norfolk Southern should be the preferred choices among the quartet from the U.S. Southeast logistics hotbed. Norfolk Southern has gathered enough steam, in fact, that it hit its 52-week high of $81 just this May 21. Profit-taking in ensuing days may provide an opportune time to take a position on this dividend aristocrat which has rewarded common stock shareholders with payouts for 123 successive quarters.

To wrap it up, keeping tab on investing opportunities in logistics companies in the Southeast can yield rewards. This region has a captive market projected to grow to half of the country’s total headcount in the near future. Additionally, the resurgent U.S. economy is a bull factor that can manifest stronger in the Southeast which has the inside track on two strategic ports closest to the Panama Canal -- the Port of Miami and Port Manatee. Increased cargo traffic in and out of the country via these ports can expected with the completion of widening and deepening of this waterway in 2014.

With 21,000 miles of track serving two-thirds of the U.S. population, CSX maintains a valuable proprietary asset. Still, this railroad will face difficult obstacles in the years ahead due to a domestic surplus of natural gas and coal’s declining popularity. To help investors better understand how CSX can deal with these challenges, The Motley Fool has released a brand-new premium research report authored by Isaac Pino, Industrials Bureau Chief and transportation expert. Isaac provides an in-depth look at CSX’s competitive advantages, risk areas, and prospects for the future. Simply click here now to access your copy of this invaluable investor's resource.

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