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Credit Suisse Warns Of 'More Ebbing Than Flowering' At Kirby, Downgrades

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Credit Suisse Warns Of 'More Ebbing Than Flowering' At Kirby, Downgrades

Credit Suisse has downgraded Kirby Corporation (NYSE: KEX) to Neutral from Outperform on slowing volumes and potential weakness in coastal business.

"While we like KEXs competitive position (25+ percent share in core inland/coastal businesses) and the long-term outlook for the maritime business at 20x our 2017 EPS estimate (12 percent below consensus) we believe the upside/downside risk is skewed to the downside," analyst Gregory Lewis wrote in a note.

Looking at refined product, chemicals and crude volumes, Lewis highlighted that tonnage on the river looks to be down 3–4 percent in the second quarter versus last year. Unsurprisingly, crude volumes were down more than 10 percent, but refined products volumes were also down about 10 percent. Meanwhile, chemicals rose about 10 percent.

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Lewis, who maintains his price target of $60, said Kirby's pricing lags in both down and up markets, which means "if 2016 is the bottom in inland pricing the earnings bottom is not until 2017."

"Without a pickup in Coastal or DES, 2017 earnings could look a lot like 2016."

Pricing Pressures Moving Forward

Lewis noted that the company may face pricing pressures due to the lifting of the ban on U.S. crude exports that has put downward pressure on the U.S. Jones Act tanker market (down 20–30 percent).

Although Kirby's coastal fleet utilization is expected to remain in the 90 percent range, the analyst said competition from larger Jones Act tankers could weigh on pricing.

"We expect some older coastal barge tonnage to eventually be scrapped but that does not happen in a strong market. The market will re-balance but that will take time," Lewis continued.

Meanwhile, shares of Kirby were up 10 percent since first quarter earnings where they cut guidance 8 percent. Kirby has outperformed the DJ Transport Index (6 percent weighting) by 1200bps since the first quarter earnings.

"Despite our bullish outlook for a 2H17 pressure pumping recovery (both utilization and pricing) DES only represents 20 percent of KEX business in the best of times," Lewis added.

Shares of Kirby closed Monday's regular trading session at $69.83.

Latest Ratings for KEX

DateFirmActionFromTo
May 2021Gabelli & Co.DowngradesBuyHold
Apr 2021JefferiesMaintainsHold
Nov 2020B of A SecuritiesUpgradesNeutralBuy

View More Analyst Ratings for KEX
View the Latest Analyst Ratings

 

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