Wells Fargo Reiterates Underperform on Hub Group Following In-Line Q3 2013 Results, Margin Constraints
In a report published Friday, Wells Fargo Securities analyst Anthony P. Gallo reiterated an Underperform rating on Hub Group (NASDAQ: HUBG).
In the report, Wells Fargo Securities noted, “HUBG Q3 2013 results were essentially in line with the 10/9 preview, although the first look at new logistics business was disappointing, in our view. We trim 2013 EPS to $1.89 from $1.90 despite Q3 2013 at $0.50 (previewed range of $0.48-0.51) versus our $0.48. We fine-tune 2014 to $2.10 from $2.11. We remain Underperform rated as we see margin constraints in intermodal and truck brokerage tempering earnings growth prospects, and little help from robust growth in logistics revenue. Q3 2013 revenue 'beat' expectations ($883 million versus Street $853 million) primarily from logistics business that was added in Q2 2013. However, the $34 million sequential improvement yielded very little improvement in operating income; down slight qtr/qtr in legacy Hub despite a $2 million bonus reversal. In the legacy Hub, intermodal gross margin was reportedly down with a modest 5% growth in volume. As discussed in the preview, brokerage margins were hurt by competition and mix. While a modest seasonal improvement is likely in intermodal, we think mix and lack of pricing power dampen hopes for margin improvement.”
Hub Group closed on Thursday at $35.50.
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