J.P. 摩根-美股-交通运输与物流业-2019年Q3物流与交通运输业回顾：主题、问题与顶级选择-2019.11.11-23页.pdf

North America Equity Research11 November 2019 Transportation&Logistics3Q19 Review:Themes,FAQs,and Top Picks.Focus:Rail End Markets Exposed to Trade War Cease FireAirfreight and Surface TransportationBrian P.Ossenbeck,CFA AC(1-212)622-Bloomberg JPMA OSSENBECK J.P.Morgan Securities LLCSee page 20 for analyst certification and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment Transports and logistics stocks broke out of the September slump with the help of a broader return to cyclicals and a potential path to a cease fire in the U.S./China trade war.The possibility of a Phase One deal boosted sentiment on stocks with global exposure,history of recent guidance cuts,and year to date underperformance.Railroads are also expected to benefit from stronger commodity volumes as tariff headwinds fade,although our detailed analysis shows the direct impact is limited across agriculture,forest products,coal and metals.We expect any resolution would be reflected by improving business sentiment,BNSFs$140mm soybean lossrepresent the largest potential upside for a Class I rail assuming the U.S.recovers from missing two peak export windows.Overall,the stocks did pump the brakes a bit when reporting earnings but as the truckload brokers illustrated,a lack of self-help initiatives at this point of the freight cycle can quickly push low expectations even lower.Top pick NSC posted another frustrating quarter but we are positive on the$120mm+fuel efficiency opportunity and the potential near term benefit of repairing a bridge faster than expected with costs baked into the 4Q19 guide.Highlights of key sector FAQs and themes are listed below with more details inside the note including:summaries of top picks NSC,CP,and HUBG(page 4),scorecard of 3Q19 stock calls,(page 5),most frequently asked investor questions(pages 6-15),and key sector themes(pages 16-19).FAQ#1:Where does sentiment stand across the groups and specific stocks?Sentiment across the sector improved with the recent U.S./China trade headlines and stability in PMI manufacturing after an unexpected drop during a tough September for the sector.This backdrop has sparked interest in stocks with global exposure,low valuation,and recent guidance cuts such as FDX,XPO and R.Sentiment on TL brokers remained negative after a weak outlook from CHRW while the carriers have cooled after the recent outperformance and rails look ahead to easier 2020 comps with potential truckload conversion attracting the highest amount of new interest.FAQ#2:How could a U.S./China trade truce impact rail volumes?Headlines of a potential cease fire resurfaced at the beginning of 3Q19 earnings and has fueled hope for a commodity carload tailwind in 2020.We estimated the potential impact of a broad tariff roll-back by comparing 2017 data(pre-trade war)to 2019 revenue and carloads for specific categories including soybeans,corn and forest products.Overall,we expect a trade war resolution would have fairly limited direct benefits on rail volumes with improving business confidence having a broader,positive impact.A summary of tariff implications for key categories and rail exposure is on page 7.FAQ#3:Is it possible for NS to make the prior“all-in”2019 OR guide?Management pulled back the prior all-in OR guidance of+100bps improvement in 2019 but did not provide a financial bridge to adjust for several one-time items,including an actual bridge outage.Investors are becoming more frustrated with a lack of PSR progress similar to peers which includes poor fuel efficiency(see Theme#2),but we expect NS will continue improving on recent performance.Moreover,we noted in our November 1 Fast Track that NS repaired the bridge two weeks ahead of schedule which could provide a potential lift to the 2019 all-in OR.FAQ#4:What are the risks to the consensus view of a 2H20 TL rate recovery?Whenever there is a consensus view of a truckload rate trajectory six months in the future we believe some caution is warranted,although we recognize the consistency of the carriers is aligned at the beginning of 2020 bid season.Spot rates likely 2North America Equity Research11 November 2019Brian P.Ossenbeck,CFA(1-212)622- bottoming in 3Q19 supported this view and our recent expert call with DAT reinforced our view that supply constraints represent a greater upside risk to rates as the cycle recovers.Regulations will continue squeezing capacity starting with the final ELD implementation next month which will also linger into 1Q20.FAQ#5:Do Uber Freights disclosures provide any insight on net margins?The segment was carved out of Other Bets with 3Q19 results and included historical EBITDA and adjusted net revenue.Freight continued its recent growth trends with loads up over 100%as it continued to“rapidly take share in the large U.S.market”but it came at a cost of a-37%EBITDA margin,although the level of corporate allocations was not clear.Net revenue margins were not disclosed but we believe they are still negative and are not able to be estimated by comparing adjusted net revenue and gross bookings as they are essentially equivalent by definition.Theme#1:The rail volume outlook is showing light at the end of the tunnel.In addition to the gradual tightening of truckload capacity noted in FAQ#4,the October stabilization of the composite manufacturing PMI is a potential green shoot for rail carload volumes.We still expect trends become worse before getting better and another shorter,more common freight“mini-cycle”takes hold.Over the last 10 years rail carloads have averaged 1.3x U.S.IP while intermodal tracked 2.0 x real U.S.GDP,but 2020 could top this multiple with fewer lane rationalizations and supportive TL market despite slower growth in disposal income.Theme#2:Fuel efficiency will become a more important driver of rail margins.We initially estimated Norfolks fuel efficiency savings at$120mm in conjunction with our PSR potential structure outlined in the 2019 Outlook.The opportunity is even larger after NS was the only rail losing efficiency(-13%in 3Q19)while CSX isnow nearly best-in-class.We expect Norfolk can improve with AC locomotive conversions,longer and heavier trains under the new network design,and focus on fuel optimization practices in the field.Historically,CSX has run a younger fleet with more AC locomotives and recently began utilizing more distributed power.Theme#3:Demurrage trends stabilized after a large drop in 2Q19.A regulatory hearing on demurrage practices was followed by significantly lower revenues in 2Q19.We noted the risk of these falling fees in our CSX downgrade considering we estimate demurrage contributed 15%of 2018 operating income growth and it fell to 1.7%of revenue in 2Q19.In 3Q19,demurrage declined sequentially but remained 1.5%of revenue compared to the historical average of 0.5%.If CSXs demurrage remains consistent as a percentage of revenue,we estimate a 30bps headwind on 2020 OR which could increase to 130bps if it reverts to the historical average.Theme#4:UPSs gain from extending asset lives faded,pension could be next.The companys depreciation benefit from the accounting estimate change declined$61mm,we estimate YoY unit cost improvement ex-D&A gains was+3.0%compared to the+2.5%reported.We expect the asset life headwind becomes larger in 4Q19 at 110bps which we will continue adjusting out in order to paint a clearer picture of core operations.We expect some pressure on unit costs in 2020 as D&A tailwinds fade and lower interest rates at year end likely create a pension headwind after lower service costs provided a YoY tailwind in 2019.Theme#5:Rail mix headwinds have been manageable in 2019.Unlike the last Freight Recession,U.S.oil production is at record levels which supports energy related freight activity and keeps truck drivers employed in the oil fields.We believe this is one of the reasons our proxy for mix on page 19 does not look as negative as 2015/2016.Weaker intermodal volumes compared to the 2018 tariff pull-forward following railroad lane rationalizations also support mix.We expect export coal and a resumption of intermodal growth will pressure Eastern rails mix while gradual gains in crude by rail should generate supportive mix for the Canadian railroads.3North America Equity Research11 November 2019Brian P.Ossenbeck,CFA(1-212)622- Table of ContentsTop Picks in Transports&Logistics.4Illustrated 3Q19 Review.5Revisiting Accumulates and Avoids.5Most Frequently Asked Questions from 3Q19.6Top Themes from 3Q19.16Figure 1:North America Transportation and Logistics Comp SheetSource:J.P.Morgan estimates,Bloomberg,Company Reports.Note:Local FXJPMMkt CapPriceDec 20Implied%2 YearNet DebtCompanyTickerRating(Bn)11/8TargetReturnYTDQTD1819E20E1819E20EPEG1819E20E1819E20Eto EBITDAParcelsFedExFDXN$42.6$163.22$140.00(14.2%)2.4%12.1%10.8x 10.7x 13.5x$15.11$15.26$12.130.8x$15.34$15.12$12.506.4x6.7x7.6x2.9xUPSUPSN$106.6$124.30$134.007.8%30.9%3.7%17.3x 16.5x 15.4x$7.20$7.52$8.091.5x$7.24$7.48$7.9012.9x 11.9x 11.1x2.1xRailroadsCanadian National RailwayCNR CNN$90.2$125.10$123.00(1.7%)25.4%5.2%23.1x 20.8x 18.9x$5.40$6.01$6.602.5x$5.50$6.00$6.5514.8x 14.1x 13.0 x1.9xCanadian Pacific RailwayCP CNOW$43.3$311.18$346.0011.2%29.5%5.7%21.9x 19.0 x 17.0 x$14.21$16.38$18.351.1x$14.53$16.39$17.85 14.8x 13.5x 12.4x2.4xCSX CorpCSXN$57.9$74.03$78.005.4%20.4%6.9%19.4x 17.6x 16.6x$3.82$4.20$4.460.5x$3.84$4.17$4.3011.5x 11.4x 11.2x2.3xGenesee&WyomingGWRN$6.4$111.34$112.000.6%50.4%0.8%29.7x 26.3x 23.4x$3.74$4.23$4.761.4x$3.87$4.12$4.6712.8x 12.5x 11.0 x3.7xKansas City SouthernKSUN$15.2$153.31$152.00(0.9%)62.1%15.3%25.8x 22.4x 19.4x$5.95$6.83$7.891.8x$5.97$6.87$7.6913.7x 13.3x 11.9x2.1xNorfolk Southern CorpNSCOW$51.0$195.44$225.0015.1%33.3%9.3%21.2x 19.2x 17.2x$9.24$10.17$11.380.8x$9.52$10.17$11.35 12.4x 12.1x 11.3x2.2xUnion Pacific CorpUNPN$122.2$176.10$184.004.5%29.5%8.7%22.4x 20.6x 18.3x$7.87$8.53$9.611.1x$8.00$8.39$9.4513.4x 13.4x 12.7x2.4xTruckload Carriers&BrokersC.H.Robinson WorldwideCHRWN$10.6$78.06$79.001.2%(5.5%)(7.9%)17.0 x 17.5x 17.7x$4.60$4.45$4.421.1x$4.74$4.40$4.3511.7x 12.0 x 12.2x1.1xEcho GlobalECHON$0.6$21.97$26.0018.3%8.1%(3.0%)12.3x 15.1x 15.0 x$1.78$1.46$1.470.3x$1.88$1.50$1.457.3x8.9x8.9x1.9xHeartland ExpressHTLDUW$1.8$22.16$22.00(0.7%)21.5%3.0%26.5x 22.3x 22.7x$0.84$0.99$0.980.8x$0.86$0.99$0.809.0 x8.7x7.9x-0.3xKnight-SwiftKNXN$6.5$37.80$40.005.8%51.6%4.1%14.9x 16.8x 17.1x$2.54$2.24$2.210.4x$2.56$2.28$2.017.2x7.5x7.3x1.0 xSchneider NationalSNDRN$4.2$23.89$24.000.5%29.1%10.0%15.7x 18.6x 17.9x$1.52$1.29$1.340.9x$1.55$1.27$1.256.3x6.8x6.3x0.0 xU.S.XpressUSXOW$0.2$4.89$6.0022.7%(12.8%)1.5%2.9x26.0 x 15.5x$1.68$0.19$0.32N/A$1.68$0.25$0.253.4x5.0 x4.2xN/AWerner EnterprisesWERNUW$2.6$38.17$37.00(3.1%)46.8%8.4%16.4x 16.2x 16.7x$2.33$2.35$2.280.4x$2.38$2.33$2.006.0 x6.0 x6.0 x0.7xLogistics&LTLRyder SystemRUW$2.9$53.86$49.00(9.0%)15.2%4.0%9.3x56.1x 16.4x$5.79$0.96$3.28-0.2x$5.78$1.10$2.004.7x5.0 x4.8x3.4xXPO LogisticsXPOOW$7.8$84.64$90.006.3%48.4%18.3%25.5x 21.3x 18.7x$3.32$3.97$4.540.6x$3.19$3.99$4.347.6x7.7x7.2x3.2xIntermodalJ.B.HuntJBHTN$12.8$119.98$125.004.2%30.2%8.7%22.2x 22.3x 20.1x$5.40$5.37$5.971.1x$5.64$5.41$5.8511.0 x 10.6x9.9x1.1xHub GroupHUBGOW$1.7$49.50$60.0021.2%33.5%6.5%17.7x 14.7x 14.9x$2.80$3.38$3.330.4x$2.91$3.50$3.699.6x6.8x6.5x0.9x4.8%27.5%6.1%18.6x 21.0 x 17.6x0.9x9.8x9.7x9.2x7.9%25.5%4.1%20.4x 18.8x 17.0 x1.1x28.9%5.3%3.8%22.3%6.9%15.8x 15.8x 14.2x1.3x(3.2%)16.6%7.9%14.0 x 13.6x 14.4x9.6x9.3x9.3x4.9%35.8%7.4%23.4x 20.9x 18.7x13.3x 12.9x 11.9x6.4%19.8%2.3%15.1x 18.9x 17.5x7.3x7.8x7.5x(1.3%)31.8%11.1%17.4x 38.7x 17.5x6.1x6.3x6.0 x12.7%31.9%7.6%20.0 x 18.5x 17.5x10.3x8.7x8.2xEV/EBITDAGroup AverageLogisticsIntermodalConsensus P/E and EPSS&P 500Industrials ETFDJ TransportsParcelsRailsTruckloadJPM EPS4North America Equity Research11 November 2019Brian P.Ossenbeck,CFA(1-212)622- Top Picks in Transports&Logistics#1:NSC Re-imagining operational efficiency and OR guidance frameworkWe remain confident the Norfolk network can achieve a sub-60%operating ratio by narrowing the performance differential with CSX which has easily surpassed NS in several areas of labor and train productivity.Narrowing the gap to historical levels,not necessarily parity with CSX today,represents significant upside for Norfolks network OR.Another glaring differential became obvious in 3Q19 when fuel efficiency decreased-13%while all other peers gained YoY,we expect NS can improve with more AC locomotives and heavier trains.We are also looking for better communication of financial results after recent confusion around OR guidance and expectations.Sentiment appears subdued following the last earnings call but we do not believe the current operating performance is sustainable in the long run considering Norfolk is trailing peers in nearly every major KPI.#2:CP Specific opportunities and easy comps ahead in 2020The network led Class I peers in volume growth throughout 2019 and appears poised to deliver operating ratios with a“five handle”as promised after a challenging 1Q19.Despite delays in export potash,crude by rail and Canadian grain we expect the volume outlook will remain supportive through 1H20 with an above average degree of visibility and a 69%OR comp in 1Q19.The company was the only railroad providing any quantitative view on 2020 volume,citing+2%growth from CP-specific developments including recent contract wins and key customers anchoring newly expanded facilities.Sentiment on CP remains negative after concerns of increasing competition with CN and skepticism that the recent volume momentum can be sustained.Unlike U.S.peers,CP does not have the same PSR potential left but it should continue pursuing growth at low incremental cost.#3:HUBG Truckload rate exposure at a reasonable valuationHub has demonstrated a more durable operating model throughout 2019,including recent results which beat expectations and delivered record margins despite down revenues.Recent self-help initiatives supported 3Q19 earnings with another phase expected to deliver another$40mm of expense savings which is roughly 25%of 2019 consolidated operating income.The primary opportunities are cost controls and operating efficiency gains at dray terminals and more efficient utilization of outsourced labor.Management made headlines when it cited a muted peak season for 2019 but we see some conservatism in the 4Q19 guidance.Sentiment is fairly negative in our view given the current truckload market conditions,J.B.Hunts recent moves to take share,and rail cost concerns.We still see an underappreciated self-help story at Hub with exposure to increasing truckload rates at a reasonable valuation and tailwinds from improving rail service at UP and NS in 2020.5North America Equity Research11 Novemb