Analyst: Underlying Demand Doesn't Support 'Relief Rally' In Trucking Stocks

IAA Inc. IAA has rallied 8% in the past week and is now up 18% since it split off from KAR Auction Services, Inc. KAR in late June.

The salvage auction stock is on fire — along with other trucking stocks — in the past two days, Bank of America Merrill Lynch analyst Ken Hoexter told Benzinga Monday that traders may be predicting a bottom in the trucking market.

Bottom In?

A small trucking bankruptcy on Friday coupled with another round of earnings estimates cuts from trucking companies may be a sign that the market has finally bottomed, Hoexter said. 

There are no signs of improvement in underlying trucking fundamentals, the analyst told Benzinga. 

“More estimate cuts came for truckers and rails this week ahead of earnings season next week." 

The bullish reaction in the market could be a relief rally, he said. 

“But I’d wrap it up and say underlying demand data certainly doesn’t show any pop," Hoexter said. 

Capex Cuts

Last week, Bank of America downgraded US Xpress Enterprises Inc USX from Buy to Neutral after the company pre-announced weaker-than-expected earnings numbers and cut its 2019 capex guidance from between $170 million and $190 million to between $110 million and $130 million.

A soft macro freight environment is weighing on prices, Hoexter said. 

“While we remain attuned to the prospect for a change in the second derivative as rates inflect, we believe there has been relatively limited evidence that such a turn is likely to occur in the near term,” he wrote on Friday.

Despite resiliency in trucking stocks in the past two days, Hoexter cut his price target for US Xpress by 50% from $12 to $6. In addition, he cut his targets for Buy-rated Knight-Swift Transportation Holdings Inc KNX from $43 to $38 and for Neutral-rated Werner Enterprises, Inc. WERN from $38 to $33.

IAA shares were up 0.95% at the time of publication Monday; US Xpress shares were down 0.69%; Knight-Swift shares were down 0.15%; and Werner Enterprises shares were down 0.61%. 

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