BofA Says 'Move Back In' To Transports; Upgrades Industry En Masse

BofA Merrill Lynch’s Ken Hoexter said that the ratings for nearly half of the rails and trucks under coverage had been raised on account of “the stabilization of rail car loadings, uptick in our biweekly truck shipper survey, and historically relative attraction of valuation multiples.”

In 2015 and early 2016, the Dow Transports underperformed the S&P 500 by 1800 bps. This underperformance pushed the multiples of most rails and trucks below their historical ranges, and into attractive levels, analyst Ken Hoexter stated.

On the other hand, intermodal rail carloads posted positive results for consecutive weeks in February, and are expected to post a strong performance over the next few weeks.

Moreover, BofA Merrill Lynch’s Truckload Diffusion Indicator for shippers’ three-month freight demand outlook came in at 53.7. Although this represented an 18 percent y/y decline, it was up sequentially by 4 percent, making it the highest reading YTD and the least negative y/y reading since October 2015, following six straight weeks of more than 20 percent declines.

Rating And Price Objective Changes

• Genesee & Wyoming Inc GWR – Rating upgraded from Underperform to Neutral, with an increase in price objective from $51 to $60.
• CSX Corporation CSX – Rating upgraded from Neutral to Buy, with an increase in price objective from $25 to $28.
• Werner Enterprises, Inc. WERN – Rating upgraded from Underperform to Neutral, with an increase in price objective from $25 to $28.
• Union Pacific Corporation UNP – Rating upgraded from Neutral to Buy, with an increase in price objective from $74 to $88.
• Knight Transportation KNX – Rating upgraded from Neutral to Buy, with an increase in price objective from $24 to $28.
• Swift Transportation Co SWFT – Rating upgraded from Neutral to Buy, with an increase in price objective from $16 to $21.

Price Objective Changes

• J B Hunt Transport Services Inc JBHT – Buy rating maintained, with an increase in price objective from $80 to $86.
• Canadian National Railway (USA) CNI – Buy rating maintained, with an increase in price objective from $56 to $59.
• World Fuel Services Corp INT - Neutral rating maintained, with an increase in price objective from $43 to $47.