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Our chart book tracks the year-to-date share price performance of a basket of stocks relative to a sector neutral index return for our important themes. We hope this report stimulates thought in this and other areas. For June, we find improved stock performance among most of our dividend strategies. Conversely, we find poor stock price performance in our baskets of high international exposures, high short interest, and high cash companies. Our large dividend increaser basket’s stock returns improved in June and is now up 12.7% YTD on an absolute basis.
More news on the AMR labor situation this week and, as expected, more “answers” have just led to countless new questions. In this note we do our best to pose the most pressing questions and provide answers as best we can, using the information available to us. For those interested in details we also created a new table laying out the differences on key issues in the three possible contract outcomes for AMR’s pilots: abrogation, acceptance of AMR’s final offer, and LCC’s offer.
Discussion points covered in this audio: What pension funding relief measures are included in the Highway Bill? Who are the short term winners from pension funding relief? Where is investor sentiment on this issue?
This weekly report presents the most recent views we are hearing from industry insiders and summarizes the research of Wolfe Trahan. Included are (1) key takeaways, selected shipper comments; (2) notices of upcoming industry events; (3) key takeaways from some of our notes from the past week; (4) recent stock performance for our transport universe; (5) updated comparison tables for the airfreight & logistics group, railroads, and trucking; and (6) fuel trends for West Texas Crude Oil, On-highway diesel, Rail diesel, and Jet fuel.
- Total Week 25 rail vols increased 3.9% y/y, above +2.3% and +2.9% the prior 2 weeks and the best y/y growth in 20 weeks. Vols ex-coal improved 5.3% y/y, similar with the past 2 weeks. Overall rail vols are now tracking up 1.0% QTD with 1 week of data remaining, in line with our expectations for the qtr.
UAL’s 2Q12 PRASM and CASM ex-fuel guidance both came in line with our estimate, but slightly better fuel expense/gal and much better ancillary revenue offset a likely FX headwind for a $0.01 increase to our 2Q EPS estimate. We are increasing our full year estimates by a larger degree due to better than expected fuel costs. UAL’s downside participation in fuel prices was better than we thought given the company’s hedging policy (UAL’s hedges are almost entirely collar positions, which create floors that are now mostly underwater).
Inside Freight: Deal Reached on New Highway Bill, Grain Update, Rail Headcount, CP, SWFT, More LTL GRIs
Congress reached a settlement on a new 2-year highway reauthorization bill. The bill mandates electronic recorders for truckers, and we believe this is a material long-term positive for large TL carriers relative to smaller carriers. Unlike our earlier expectations, the bill seemingly does not authorize a delay in Positive Train Control or implement any other regulatory changes for the rails. Also in the note we discuss grain update, rail headcount, CP, SWFT, & more LTL GRIs.
HA updated guidance Wed morning, and in it provided positive commentary on demand trends in 2Q, lower fuel guidance than we had in our model, but also higher non-fuel costs due to unanticipated engine overhauls. The net impact is a $0.04 benefit to our 2Q12 EPS estimate, which we actually just updated and published about an hour before this 8-K was filed.
We lower fuel price assumptions across the board for our airline coverage given the continuing decline in spot prices. At the same time, we lower our PRASM growth estimates for our coverage universe, with the net impact of higher margins, EPS, and (when appropriate) target prices.
Despite an easier comp, EXPD’s airfreight vols declined 17% y/y in April vs. -9% in 1Q. Historically, EXPD’s model is not able to overcome double-digit declines in vols, and we are lowering our 2Q EPS estimate by 9% to $0.41 vs. Cons. of $0.44 and $0.44 a year ago. We are also lowering our full-year C12 estimate by 3% to $1.79 (flat y/y) vs. prior Cons. of $1.81, and our C13 estimate by 7% to $2.00 vs. prior Cons. of $2.10. We believe a 2Q miss is likely reflected in the stock and we see limited downside for EXPD at 20x forward P/E given our sense that int’l vols have bottomed. However, EXPD seems to be losing airfreight share and gross yields are likely to be worse than we previously expected. As a result, we see more upside for other transport names and don’t expect EXPD to materially outperform this year beyond a cyclical upturn in the market.
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