Barclays Sees N-T Opportunity for North American Airfreight & Ground Transportation

In a report published Monday, Barclays analysts Brando Oglenski and Keith Mori upgraded the North American Airfreight & Ground Transportation sector to Positive as an improving backdrop sets the stage for earnings growth.

As the sector continues to Outperform in 2014, reaching levels the public hasn't seen in 5 years, Oglenski and Mori tell investors to "fear not". The analysts comment, "asset-based transportation networks thrive in periods of stronger economic expansion and modestly rising inflation. With second quarter results ripe to usher in more bullish sentiment in the space, we expect valuations could have further to run as markets discount a more robust outlook." Barclays emphasized that expansion across transports implies stronger demand. Rail volume, global trade, U.S. trucking demand, and small package markets are all trending upward. The analysts added that stable inventories suggest "broad-based transport expansion is a real-time indicator of improving end markets, especially for the industrial economy."

The analysts' top picks include Union Pacific Corporation

, United Parcel Service

, Swift Transportation Company

, Canadian Pacific Railway

, and JB Hunt Transport Services

. Barclays upgraded Canadian National Railway

(on both the Toronto and New York exchange) and Norfolk Southern Corp.

to Overweight due to their exposure to the North American rail vertical. Oglenski and Mori highlighted both companies growth, focus on efficiency and pricing gains. The analysts see Canadian Nationals growth continuing to the top 25 percentile levels due to "significant" energy markets opportunities. Barclays added that solid results should help the company regain power in the Canadian market after being overshadowed by Canadian Pacific Railway. Although the analysts are "cautious" on eastern coal outcomes, they remarked that Norfolk Southern Corp. is trading at a discount. Oglenski and Mori further noted the company's improving cost structure.