Kirby Shares Attractive As Inflection Point Nears, Says Evercore

Tank barge operator Kirby Corporation KEX announced fourth quarter results, showing better than adjusted earnings per share and revenue growth of about 63 percent.

The Analyst

Evercore ISI analyst Jonathan Chappell upgraded shares of Kirby from In Line to Attractive, and increased his price target from $65 to $86.

The Thesis

Following three consecutive years of EPS contraction, pressured by overcapacity in both segments of marine transportation that hurt margins and pricing, and losses at its land-based diesel engine services, or DES, unit, the bottom could be in, Chappell said in a note.

The defensive decisions Kirby has made to withstand a downturn, and a counter-cyclical acquisition it made in its land-based DES business have resulted in cost synergies and revenue opportunities, the analyst said.

Chappell expects EBIT to increase for the first time in four years, estimating 24 percent growth, despite softness at the company's marine business. A favorable tax adjustment provides a tailwind to earnings per share in 2018.

"An investment in KEX is more about 2019 than 2018, and for next year our estimates call for another 31% increase in EBIT and a 37% boost to EPS," Evercore ISI said.

The firm expects DES unit to continue to post profit growth and the coastal business to break-even. The real upside, according to Evercore ISI, will come from the inland barge segment, which is likely to benefit from limited capacity expansion over the last two years, the ongoing economic strength and a petrochemical build-out.

Price Action

Kirby shares are up about 20 percent over the past year.

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