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Cgi 20120308

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    Cgi 20120308 Cgi 20120308 Document Transcript

    • KeyBancMarch 8, 2012 Capital￿MarketsINDUSTRIAL: Trucking TruckLoad Update: Raising Estimates on Seasonal Strength, Pricing OutlookKeyBanc Capital Markets Inc. Todd C. Fowler: (216) 689-0219 — tfowler@keybanccm.comMember NYSE/FINRA/SIPC Ryan Cieslak: (216) 689-0298 — rcieslak@keybanccm.com Cur Prv Cur Prv FC FC Current EPS Previous EPS Sym Rtg Rtg Target Target 2012 2013 2011 2012 2013 2011 2012 2013 CGI BUY BUY $17.00 $17.00 $0.96 $1.14 $0.65 $1.00 $1.18 $0.65 $0.98 $1.12 HTLD HOLD HOLD NA NA $0.77 $0.88 $0.78 $0.75 $0.85 $0.78 $0.72 $0.82 KNX BUY BUY $19.00 $19.00 $0.88 $1.01 $0.75 $0.92 $1.05 $0.75 $0.90 $1.05 MRTN HOLD HOLD NA NA $1.31 $1.62 $1.11 $1.32 $1.65 $1.11 $1.30 $1.65 WERN BUY BUY $30.00 $30.00 $1.60 $1.83 $1.40 $1.65 $1.90 $1.40 $1.65 $1.90ACTION STATEMENTFollowing recent channel work, including attendance at the Truckload Carrier Association Annual Convention earlier this week, weare increasing estimates for our covered truckload names reflecting: 1) seasonally firm freight activity strengthening into March; 2)pricing commentary at the high end of our prior expectations; and 3) benefits from favorable weather quarter-to-date. Additionally, withconstructive initial bid commentary, we believe further upside could materialize if capacity dynamics tighten into spring and summermonths, which we expect to more than offset increasingly acute driver wage pressure. We reiterate our positive truckload outlookaccordingly; our BUY-rated truckload names include Werner Enterprises, Inc. (WERN-NASDAQ), Knight Transportation, Inc. (KNX-NYSE), and Celadon Group, Inc. (CGI-NYSE).KEY INVESTMENT POINTS● Seasonally firm freight activity strengthening into March. Following seasonal January and February trends, our recent channel work suggests freight activity is ahead of expectations in early March, partially reflecting an early Easter holiday and some pull- forward demand in anticipation of higher fuel surcharges. Additionally, contacts indicated favorable weather quarter-to-date has positively impacted utilization and operating costs relative to year-ago levels, with stable retail order activity, modest improvement in housing-related end markets, and an extended produce season potentially supporting current dynamics into spring and summer months. Anecdotal commentary is consistent with acceleration in recent load board trends, which are near multi-year highs as limited incremental capacity has entered the market despite improving volumes (Exhibit 4).● Pricing commentary at the high end of our prior expectations. Our checks indicate initial contractual rate increases are trending solidly in line with our low to mid single-digit expectations, with increases within this range receiving minimal resistance from shippers. In addition, several large carriers we spoke with expect stronger pricing in coming months and anticipate reworking rates mid-year if capacity tightens further, while increased awareness surrounding CSA regulations has provided carriers having superior safety profiles additional pricing leverage (Exhibit 8). We were somewhat surprised at the magnitude of freight out to bid and heard indications of modest expansion in transportation budgets, which we sense is largely attributable to concerns among shippers about accessing capacity during peak months.● Driver availability a primary concern; near-term costs manageable. Consistent in our conversations was increased difficulty finding qualified drivers to seat tractors, partially offsetting a portion of utilization trends quarter-to-date. That said, nearly all carriers we spoke with are not planning across the board pay increases in 2012, preferring to be surgical with tailored incentives including sign-on and performance bonuses, guaranteed minimum miles, and new equipment to retain and recruit drivers. While we believe driver pay headwinds are increasingly acute and could become more pronounced as freight activity accelerates, commentary suggests a measured near-term approach, with potential rate increases likely to outstrip higher costs going forward. FOR IMPORTANT DISCLOSURES AND CERTIFICATIONS, PLEASE REFER TO PAGE 7 OF THIS NOTE. 1
    • Company Note March 8, 2012● 1Q12 consensus likely conservative; increasing estimates. Relative to historical seasonality, current 1Q12 estimates imply a greater than average sequential decline from 4Q11 (Exhibit 2). While noting 4Q11 benefited from an extended peak and favorable weather, based on our due diligence, seasonally firm freight activity strengthening into March, an extra operating day related to Leap Year, and continued favorable weather, we believe current 1Q12 consensus estimates are likely conservative. Considering these trends, we are increasing our 1Q12 estimates to above consensus, and modestly increasing our full year pricing expectations. With constructive initial bid commentary, we believe further upside could materialize if capacity dynamics tighten into spring and summer months.● Reiterate positive outlook. With capacity balanced to tight at the current level of economic activity, we view pricing and utilization dynamics favorably, and consider improvement in key housing and consumer-related markets incremental (see our February 5 note “A Look at the Potential Impact of Improved Housing on Trucking”). Despite outperformance year-to-date (KBCM Truckload Index +12% vs. +8% for the S&P 500 and +1% for Dow Jones Transportation Average), valuations remain below five-year median levels and we reiterate our positive outlook accordingly. Our top ideas include BUY-rated WERN, KNX, and CGI. 2
    • Company Note March 8, 2012SUMMARYExhibit 1: Summary of Estimate Changes for Truckload Coverage 1Q12E EPS 2012E EPS 2012E Pricing Old New Consensus Old New Consensus Old NewCGI $0.19 $0.20 $0.19 $1.06 $1.10 $1.05 1.7% 2.4%HTLD $0.15 $0.16 $0.17 $0.72 $0.75 $0.77 2.2% 2.9%KNX $0.16 $0.17 $0.16 $0.90 $0.92 $0.88 2.6% 3.2%MRTN $0.23 $0.25 $0.23 $1.30 $1.32 $1.31 2.7% 2.7%WERN $0.31 $0.31 $0.29 $1.65 $1.65 $1.60 2.2% 2.2%Source: KeyBanc Capital Markets Inc.Note: Represents calendar year estimates for CGI, which has June 30 fiscal year-endExhibit 2: Current 1Q12 Consensus Estimates Are Below Historical 1Q/4Q Sequential Progression Sequential EPS Decline in 1Q from 4Q Current 10-Yr Avg Last Year ConsensusCGI ($0.05) ($0.04) ($0.05)HTLD ($0.01) ($0.01) ($0.02)KNX ($0.03) ($0.08) ($0.06)MRTN ($0.03) ($0.05) ($0.12)WERN ($0.09) ($0.11) ($0.11)Source: KeyBanc Capital Markets Inc.Exhibit 3: Sensitivity Analysis and 2012 Assumptions for Truckload Coverage KBCM 2012 Annual Earnings Per Share Price, Volume, and Operating Ratio 2012 Estimates Accretion from 100 bps change Estimates Operating Price Volume Operating Price Volume KBCM Consensus Ratio (Y/Y % Chg) (Y/Y % Chg) Ratio(based on TL operations only) CGI (1) $0.09 $0.01 $0.12 2.4% -2.7% 93.4% $1.10 $1.05 HTLD $0.03 $0.01 $0.03 2.9% 2.6% 82.6% $0.75 $0.77 KNX $0.04 $0.01 $0.04 3.2% 1.5% 87.3% $0.92 $0.88 MRTN $0.08 $0.01 $0.09 2.7% 1.0% 91.9% $1.32 $1.30 WERN $0.07 $0.01 $0.10 2.2% -0.6% 90.2% $1.65 $1.61(1) Represents calendar-year estimates for CGI, which has June 30 fiscal year-endSource: KeyBanc Capital Markets Inc. 3
    • Company Note March 8, 2012Exhibit 4: Freight Activity Was Seasonally Stable Through February, but Is Strengthening into March Truckstop.com Market Dem and Index a reading above 8 equals tight capacity 18 16 14 12 Index Value 10 8 6 4 2 Avg, 2003-2011 2011 2012 YTD 0 Jul Feb Jan Jun Oct Mar May Nov Dec Sep Aug AprSource: Internet Truckstop, KeyBanc Capital Markets Inc.Exhibit 5: Spot Rates Are in Line with Normal Seasonality Spot Rates, Dry-van $1.600 Spot rate per mile (ex fuel surcharge) $1.500 $1.400 $1.300 $1.200 $1.100 $1.000 May Mar Feb Nov Apr Jan Jun Aug Sep Jul Oct Dec 2011 2012 Avg, 2005-2011Source: KeyBanc Capital Markets Inc., Internet Truckstop 4
    • Company Note March 8, 2012Exhibits 6 and 7: Contractual Rates Remain up Mid-to-High Single Digits Year-over-year Contractual Dry-Van Truckload Rates Contractual Dry-Van Truckload Rates Y/Y % Chg Rolling 3 mo. Avg. 12.0% $1.600 10.0% $1.550 8.0% 6.0% $1.500 4.0% 2.0% $1.450 0.0% $1.400 -2.0% -4.0% $1.350 -6.0% -8.0% $1.300 May-04 Jan-05 May-05 Jan-06 May-06 Jan-07 May-07 Jan-08 May-08 Jan-09 May-09 Jan-10 May-10 Jan-11 May-11 Jan-12 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11Source: KeyBanc Capital Markets Inc., Truckloadrate.comExhibit 8: Compliance, Safety, Accountability BASICs by Carrier (as of February 24, 2012) Controlled Fatigued Driving Substances and Unsafe Driving (HOS) Driver Fitness Alcohol Vehicle MaintenanceCarrier Power Units Drivers (60% Threshold) (60% Threshold) (75% Threshold) (75% Threshold) (75% Threshold) Cargo-Related Crash IndicatorTruckload Carriers:Swift Transportation Inc. 15,212 14,300 41.5% 43.9% 65.8% 31.3% 53.3% NA NASchneider National Carriers Inc. 10,617 12,216 22.2% 13.8% 38.4% 3.9% 63.5% NA NAJB Hunt Transport Inc. 10,512 10,096 14.0% 35.0% 29.8% 5.8% 36.6% NA NAWerner Enterprises Inc. 8,156 10,384 47.9% 12.0% 53.2% 33.3% 59.1% NA NALandstar Ranger Inc. 5,844 6,384 19.8% 55.1% 25.5% 1.9% 58.5% NA NAUS Xpress Inc 5,907 6,638 57.3% 49.4% 48.3% 37.2% 50.7% NA NACrete Carrier Corporation 5,421 5,141 24.5% 28.0% 19.8% 13.7% 39.6% NA NAKnight Transportation Inc. 3,644 3,704 42.6% 30.4% 76.6% 29.4% 56.7% NA NAKnight Refrigerated LLC 630 739 46.7% 38.4% 86.5% No Violations 36.8% NA NAQuality Carriers Inc 3,424 3,360 25.1% 45.8% 56.8% Inconclusive 60.1% NA NACeladon Trucking Service Inc 3,810 2,650 40.3% 42.6% 66.8% 23.5% 52.1% NA NACeladon Canada Inc 256 266 16.7% 16.6% No Violations No Violations 31.6% NA NAHeartland Express Inc. 2,886 2,886 26.9% 24.3% 36.7% 39.2% 13.8% NA NACon-way Truckload Inc. 2,741 2,968 50.8% 26.9% 30.4% 56.8% 37.2% NA NAMarten Transport Ltd. 2,362 2,662 75.4% 18.8% 59.3% Inconclusive 25.3% NA NAWestern Express Inc. 2,450 2,450 80.7% 70.0% 94.5% 66.6% 63.1% NA NAUSA Truck Inc. 2,368 2,508 54.9% 62.5% 60.1% 60.7% 67.0% NA NACovenant Inc. 1,675 3,000 53.8% 34.8% 47.2% 1.8% 32.3% NA NACRST Expedited Inc. 1,931 3,979 94.1% 37.9% 63.5% 9.8% 25.9% NA NAInterstate Distributor Co. 1,908 2,119 36.2% 39.0% 33.5% Inconclusive 30.1% NA NANFI Interactive Logistics LLC 1,250 1,387 17.5% 42.7% 45.1% No Violations 59.9% NA NALess-than-truckload Carriers:Con-way Freight 9,304 14,103 3.5% 21.6% 28.7% 0.9% 25.7% NA NACon-way Freight Canada Inc 132 207 No Violations Inconclusive No Violations No Violations 13.1% NA NAABF Freight System Inc 3,848 6,730 6.4% 21.0% 20.8% No Violations 42.6% NA NAOld Dominion Freight Line Inc 6,065 6,978 5.8% 29.9% 32.8% No Violations 44.6% NA NAFedex Freight Inc 14,703 18,820 1.7% 17.0% 23.8% 5.5% 38.6% NA NAUPS Freight Inc 7,186 8,465 8.1% 38.1% 23.1% 1.6% 58.1% NA NANew Penn Motor Express Inc 879 1,534 3.1% 13.8% 48.5% No Violations 25.9% NA NAUSF Holland Inc 3,948 4,876 16.3% 26.3% 12.0% 0.4% 56.9% NA NAUSF Reddaway Inc 1,488 1,413 0.4% 10.1% 3.8% No Violations 31.7% NA NAYRC Inc 8,766 14,279 4.0% 27.1% 31.3% 0.0% 70.0% NA NAOther:Comtrak Logistics 2,153 2,135 22.8% 36.3% 33.2% 10.3% 74.2% NA NARyder Truck Rental Inc 106,053 488 0.0% 30.6% 48.4% No Violations 14.0% NA NANote: As of February 24, 2012Source: Federal Motor Carrier Safety Administration 5
    • Company Note March 8, 2012Exhibit 9: Truckload Valuation Comparison 12-Month 52- 52- Price Tgt Market 03/08/12 Price Upside to Week Week P/E Multiple Hist(1) EV/EBITDA Hist(1) Dividend Net Cash Book Price Avg Vol Op Ticker Companies Rating Cap (mil) Price Target Price Tgt Low High 2012E 2013E (2012E) P/E 2012E 2013E EV/EBITDA Yield (Debt)/Share / Share / Book (000s) MarginTruckload Covered Companies:JBHT J.B. Hunt Transport Services, Inc. Hold $5,993 $51.20 NA NA $34.42 $53.02 20.5x 18.0x NA 19x 8.7x 7.9x 9x 1.0% ($6.23) $4.75 10.8x 864 9.9%WERN Werner Enterprises, Inc. Buy $1,826 $25.06 $30.00 19.7% $19.78 $27.17 15.2x 13.2x 18.2x 17x 5.0x 4.5x 5x 0.8% $0.17 $9.89 2.5x 450 8.7%KNX Knight Transportation, Inc. Buy $1,406 $17.71 $19.00 7.3% $12.63 $19.96 19.3x 16.8x 20.7x 21x 7.1x 6.5x 8x 1.4% ($0.57) $5.98 3.0x 522 11.5%HTLD Heartland Express, Inc. Hold $1,269 $14.67 NA NA $12.75 $18.12 19.7x 17.3x NA 20x 6.9x 6.5x 10x 0.5% $1.60 $3.91 3.8x 244 20.2%MRTN Marten Transport, Ltd. Hold $456 $20.72 NA NA $15.90 $23.32 15.7x 12.6x NA 18x 3.8x 3.4x 5x 0.4% $0.94 $14.42 1.4x 55 7.1%CGI Celadon Group, Inc. (2) Buy $334 $14.65 $17.00 16.0% $8.18 $16.80 13.3x 11.3x 15.4x 17x 8.8x 7.7x 7x 0.0% ($11.05) $7.91 1.9x 113 5.7%Peer Companies:SWFT Swift Transportation Company NC $1,536 $11.01 NA NA $5.39 $15.29 11.6x 9.8x NA NA 5.4x 5.0x NA 0.0% ($10.80) $0.62 NM 1,343 10.6%UACL Universal Truckload Services, Inc. NC $238 $15.30 NA NA $11.14 $19.08 13.0x 11.3x NA 18x 5.3x 4.7x 9x 0.0% $1.09 $10.93 1.4x 23 4.8%PTSI P.A.M. Transportation Services, Inc. NC $98 $10.97 NA NA $9.03 $13.14 NM NM NA 15x 3.1x 2.7x 4x 0.0% ($3.16) $15.69 0.7x 3 NAUSAK USA Truck, Inc. NC $82 $7.89 NA NA $6.75 $13.24 NM 18.3x NA 16x 3.9x 3.4x 4x 0.0% ($11.83) $12.33 0.6x 38 -2.7%CVTI Covenant Transport, Inc. NC $50 $3.37 NA NA $2.35 $9.86 NM 9.6x NA NM 4.0x 3.6x 6x 0.0% ($16.21) $5.91 0.6x 16 1.6%Group Average $1,208 15.7x 13.6x 17.9x 5.6x 5.1x 7x 0.5% ($5.10) $8.40 2.7x 334 7.7%(1) Represents 5-year median(2) Represents calendar-year estimates for Celadon Group, Inc. which has June 30 fiscal year-end; Net debt includes off balance sheet obligationsRisks that could impede shares from reaching our price targets include a slowdown in freight demand from macro economic factors, price competition and/or increased operating costs.Source: KeyBanc Capital Markets Inc., Factset Research Systems Inc. 6
    • Company Note March 8, 2012KeyBanc Capital Markets Inc. Disclosures and CertificationsImportant disclosures for the companies mentioned in this report can be found at https://key2.bluematrix.com/sellside/Disclosures.action.Please refer to the analysts recently published reports for company-specific valuation and risks.Reg A/C CertificationThe research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed inthis research report accurately reflect the research analysts personal views about any and all of the subject securities orissuers; and (2) no part of the research analysts compensation was, is, or will be directly or indirectly related to the specificrecommendations or views expressed by the research analyst(s) in this research report.Rating Disclosures Distribution of Ratings/IB Services Firmwide and by Sector KeyBanc Capital Markets INDUSTRIAL IB Serv/Past 12 Mos. IB Serv/Past 12 Mos. Rating Count Percent Count Percent Rating Count Percent Count Percent BUY [BUY] 225 44.20 46 20.44 BUY [BUY] 108 46.80 11 10.19 HOLD [HOLD] 273 53.60 48 17.58 HOLD [HOLD] 123 53.20 12 9.76 SELL [UND] 11 2.20 4 36.36 SELL [UND] 0 0.00 0 0.00Rating SystemBUY - The security is expected to outperform the market over the next six to 12 months; investors should consider adding thesecurity to their holdings opportunistically, subject to their overall diversification requirements.HOLD - The security is expected to perform in line with general market indices over the next six to 12 months; no buy or sellaction is recommended at this time.UNDERWEIGHT - The security is expected to underperform the market over the next six to 12 months; investors shouldreduce their holdings opportunistically.The information contained in this report is based on sources considered to be reliable but is not represented to becomplete and its accuracy is not guaranteed. The opinions expressed reflect the judgment of the author as of thedate of publication and are subject to change without notice. This report does not constitute an offer to sell or asolicitation of an offer to buy any securities. Our company policy prohibits research analysts and members of theirfamilies from owning securities of any company followed by that analyst, unless otherwise disclosed. Our officers,directors, shareholders and other employees, and members of their families may have positions in these securities andmay, as principal or agent, buy and sell such securities before, after or concurrently with the publication of this report.In some instances, such investments may be inconsistent with the opinions expressed herein. One or more of ouremployees, other than the research analyst responsible for the preparation of this report, may be a member of the Boardof Directors of any company referred to in this report. The research analyst responsible for the preparation of this report iscompensated based on various factors, including the analysts productivity, the quality of the analysts research and stockrecommendations, ratings from investor clients, competitive factors and overall Firm revenues, which include revenuesderived from, among other business activities, the Firms performance of investment banking services. In accordance withindustry practices, our analysts are prohibited from soliciting investment banking business for our Firm.Investors should assume that we are seeking or will seek investment banking or other business relationships with thecompany described in this report. 7