4 Reasons Wells Fargo Is Growing Positive On Kirby

Kirby Corporation KEX, a tank barge operator that transports bulk liquid products throughout the U.S., could see its stock benefit in 2018 from even a modest cyclical recovery, according to Wall Street's newest bull.

The Analyst

Wells Fargo's Michael Webber upgraded Kirby's stock from Market Perform to Outperform with a price target boosted from $61 to $83.

The Thesis

Kirby boasts four potential tailwinds that are likely to boost the stock higher in 2018, Webber said in a note. These factors include:

• Year-over-year inland comps will become "considerably" easier;
• Management is likely to deliver a "relatively optimistic" 2018 guidance in late January coupled with a "meaningful" reduction in its tax rate from 37 percent to 25 percent;
• Continued improvement from the DES segment it acquired; and
• M&A opportunities.

All four of these tailwinds are already known to investors, but the fact is the sector has moved far enough along in its two-year trough that at the very least a "modest" cyclical recovery will outweigh any downside risk, Webber said. Some investors may have concerns with the stock's 12 times 2018 (trough-level) EBITDA which makes it hard to consider the stock cheap. The stock's post-tax reform forward P/E multiple of 27 times, however, stands at the middle of its 13 times to 34 times peak to trough range.

Kirby's stock appears to have established a floor price near $60 per share over the past 12 to 18 months and the company's balance sheet of 26 percent net debt-cap makes it an attractive stock for longer-term investors.

Price Action

Shares of Kirby gained more than 2 percent to $76.30.

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