From a stock standpoint, 2018 was a year to forget with our WR Transport index falling 15% and underperforming the 6% drop in the S&P 500. The Rails (+0.4%) barely eked out positive returns, but all other transport sub-sectors badly underperformed with the TLs (-35%), Integrators (-30%), Forwarders (-14%) and LTLs (-14%) down the most. Not something we would have guessed at the beginning of last year just following tax reform and amidst an accelerating economy and perhaps the tightest truck market ever. But rather than rehash a tough year for the stocks, let’s look ahead and review the top 10 themes, catalysts and questions on our mind entering 2019.
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Our survey is once again almost universally positive this quarter, including record-high expectations for TL, LTL and Intermodal pricing, as well as record TL capacity tightness. Rail pricing expectations and overall volume expectations also reached multi-year highs. So our survey is clearly indicative of very strong freight fundamentals.
Our WR Transport index increased 1.5% last week and outperformed the S&P 500 (flat) for the first time in 5 weeks. We had 6 earnings reports, 6 headline beats, forward estimates moving higher for all 6 companies, and 5 of 6 stocks up on the week. So it was a pretty good start to earnings season after an initial scare on Monday when the group sold off following JBHT’s report. Here are our biggest takeaways from earnings season so far:
Our WR Transport index fell 3.6% last week and badly underperformed the S&P 500 (-1.3%) for the second week in a row as fears of a trade war continued to spread. In a risk-off tape, stocks with international exposure and/or high leverage badly underperformed last week. CNI (+1%) was a notable exception in transports last week as it’s less exposed to U.S./China trade. The biggest surprise to us last week was the underperformance at CHRW (-6%), as it typically outperform on risk-off weeks like last week. In our entire coverage, we think earnings are most defensive at CHRW, so a continued pullback here could present a nice buying opportunity in our view.
Our WR Transport index fell 2.6% last week, underperforming the 0.9% drop in the S&P 500. Transports badly underperformed last week following FDX’s report and given rising fears about a trade war. As we discussed last week, we think a trade war is negative for pretty much all transports as all of our companies are either directly or indirectly exposed to global trade activity. We don’t face immediate headwinds from rising import costs like some industrials, but if tariffs lead to lower demand, it’s certainly would be negative for freight volumes. Among the transports, EXPD and AAWW have by far the exposure to global trade with China. Among the rest of the group, we see a little more risk for FDX than UPS, a little more risk for UNP than the eastern rails, and more risk for JBHT and HUBG than the TLs or LTLs. So while last week’s underperformance at EXPD makes sense, we’re surprised AAWW was one of the best performing stocks last week, and we’re a little surprised that UNP and JBHT didn’t underperform a bit more.
Our WR Transport index increased 1.3% last week and outperformed the S&P 500 which was flat. TL stocks (+2%) performed best as spot rates increased materially during Roadcheck week and commentary from WERN and KNX was very positive at a conference. And R was the best performing transport stock as used truck pricing for the industry showed nice improvement in May. We still see EPS risk for R next year, but improvement in its used truck pricing should support its valuation.
Our WR Transport index increased 1.1% last week and yet again outperformed the 0.5% increase in the S&P 500. Transports are now nicely outperforming this year with our Transport index up 7% YTD vs. the S&P 500 which is up 2%. LTL stocks continued to outperform last week despite the drop in oil prices and our LTL index is now up 19% YTD. TL stocks also outperformed last week and KNX (+3%) finally outperformed its peers after a brutal stretch of recent underperformance. CP (+3%) also outperformed nicely after it avoided a lengthy strike and as crude oil spreads widened significantly. On the other hand, KSU (-3%) underperformed as the peso continued to weaken and following the steel/aluminum tariffs announced by President Trump.
Our WR Transport index surged 5.4% last week and materially outperformed the 2.4% rise in the S&P 500. With a strong end to earnings season (really big beats from EXPD and ARCB last week) and rising oil prices, many transports have now fully or almost fully recovered their losses from a few weeks ago when CAT ignited fears about a peak in the cycle. Our Transport index is now up 4% YTD, outperforming the 2% gain for the S&P 500. After ACRB’s report last week and rumors about Amazon potentially buying ODFL, the LTLs (+12%) are by far the best performing transport sub-sector YTD, an amazing 2-week recovery after they were down 5% YTD through the end of April. Following the LTLs, the large-cap Rails (+4%) and Freight Forwarders (+4%) are performing best, but the Truck OEMs (-13%) and TLs (-5%) continue to lag.
Our survey is once again universally positive this quarter, including record-high expectations for TL, LTL and Intermodal pricing increases. Rail pricing expectations, as well as overall volume expectations, also reached multi-year highs. So our survey is clearly indicative of very strong freight fundamentals.
Our WR Transport index increased 2.0% last week and outperformed the 0.5% rise in the S&P 500. It’s all about earnings right now, so let’s jump right into takeaways from earnings season so far. We’ve had 1 beat, 1 miss and 3 in-line reports so far, but 2Q and full-year C18 EPS estimates on the Street are generally moving higher post reports (Slide 6).
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