JPMorgan Is Bullish On Echo Global

JPMorgan’s Brian P. Ossenbeck believes that the risk-reward on Echo Global Logistics, Inc. ECHO is attractive at present.

Ossenbeck initiated coverage of the company with an Overweight rating and price target of $31.

Margin Pressure Offset

The analyst expects industry net margins to peak in 2016 following a two-year expansion, as the truckload (TL) cycle turns in 2017 and carriers hike rates.

“We believe Echo can more than offset this headwind with low contracted TL exposure when rates rise combined with less-than-truckload (LTL) leverage to recovering industrial activity,” Ossenbeck stated.

Related Link: UBS Downgrades Echo Global Logistics To Neutral

The analyst explained that high LTL and low TL contract exposure would offer a relative advantage when the TL cycle turns. Echo Global generated 26 percent of its revenues in 1Q16 from LTL brokerage.

M&A To Drive Growth

Ossenbeck also expects M&A to continue to be a growth driver for Echo Global and pointed out that the company had still not fully recognized the benefits of the $420 million Command acquisition, while further consolidation was expected in the fragmented brokerage market.

“Managed transportation deals could bring new customers while Echo can also expand by geography or equipment type. We expect Echo to more actively pursue M&A in 2017 after integrating Command by YE16,” the analyst said.

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