Industry and Valuation Overview

Transcription

1 Air Freight & Surface Transportation Industry and Valuation Overview James J. Valentine, CFA September 2003 (312) MORGAN STANLEY NORTH AMERICAN FREIGHT TRANSPORTATION EQUITY RESEARCH TEAM Research Associate Sector Name Telephone address Chad Bruso, CFA Air Freight Christopher Leshock Railroads Mike Manelli Trucking

2 Current Morgan Stanley Stock Ratings Freight Transportation Industry View: In Line Stock Ratings Overweight Canadian National (CNI) CSX (CSX) CP Ships (TEU Union Pacific (UNP) Underweight Arkansas Best (ABFS) United Parcel Service (UPS) Equal-weight Burlington Northern (BNI) C.H. Robinson Worldwide (CHRW) Canadian Pacific (CP) CNF Inc. (CNF) Expeditors International (EXPD) FedEx (FDX) Heartland Express (HTLD) J.B. Hunt Transport (JBHT) Kansas City Southern (KSU) Norfolk Southern (NSC) Ryder System (R) Swift Transportation (SWFT) USF Corp (USFC) Werner Enterprises (WERN)

3 Return on Capital Employed (ROCE) Percent UPS Expeditors CH Robinson Swift JB Hunt Ryder CP Ships Canadian Pacific Canadian National Fedex Werner Heartland Express CNF Norfolk Southern CSX Corporation Union Pacific Burlington Northern

4 Return on Equity (ROE) Percent UPS CH Robinson Swift Werner CP Ships Union Pacific Burlington Northern JB Hunt Canadian Pacific Fedex Canadian National Heartland Express Expeditors Ryder CNF Norfolk Southern CSX Corporation

5 Returns on Equity (Du Pont Model) Rail Avg. TL Avg. LTL Avg. Profit Margin (Net Income/Revenues) 7.6% 3.6% 1.8% Asset Utilization (Revenues/Assets) Leverage (Assets/Equity) Return on Equity 9.1% 9.5% 8.4% Source: Company reports, Morgan Stanley research

6 Infrastructure Costs: Railroads vs. Truckload 40.0% 35.0% 30.0% 25.0% % of Revenue 20.0% 15.0% 10.0% 5.0% 0.0% Railroads Werner Note: 2001 Data, railroad figures include capitalized and expensed railway and structure expenditures. Source: Association of American Railroads, company reports

7 Modal Pricing Less-than-Truckload (ex FS) Truckload Railroad Source: Association of American Railroads, Bureau of Labor Statistics

8 Labor Costs by Mode Average Wage & Benefit Cost per Employee Wage & Benefit Expense as a % of Revenues Average Wage & Benefits per Employee $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Railroad ` Unionized LTL Truckload Wage & Benefits as a % of Revenue 70% 60% 50% 40% 30% 20% 10% 0% Unionized LTL Truckload Railroad Source: Association of American Railroads, company data

9 Shipper Service Rankings of Railroads and Trucks Shipper Rankings of Value for the Dollar Shipper Rankings of Delivery Reliability 9.0 Jan '02 May '02 Jan '03 June ' Jan '02 May '02 Jan '03 June ' LTL Truckload Rail 0.0 LTL Truckload Rail Source: Morgan Stanley Freight Pulse Surveys

10 Trucking and Railroad P/E Ratios 25.0 Truckload Sector P/E Based on 12-Month Forward Consensus EPS Estimates (left axis) Regional LTL Sector P/E Based on 12-Month Forward Consensus EPS Estimates (left axis) Rail Sector P/E Based on 12 Month Forward Consensus Estimates 20.0 P/E Ratio Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

11 Stock Index Performance TL Index S&P 500 Regional LTL Index Rail Index National LTL Index Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Source: FactSet

12 Morgan Stanley Truckload Freight Index Dry-Van Only Average Jan Source: Morgan Stanley Research Incremental Truckload Demand 16-Jan 31-Jan 15-Feb 2-Mar 17-Mar 1-Apr 16-Apr 1-May 16-May 31-May 15-Jun Incremental Truckload Supply 30-Jun 15-Jul 30-Jul 14-Aug 29-Aug 13-Sep 28-Sep 13-Oct 28-Oct 12-Nov 27-Nov 12-Dec 27-Dec

13 Morgan Stanley Dry-Van Supply/Demand Indexes Dry-Van Demand Index Dry-Van Supply Index /1 1/15 1/29 2/12 2/26 3/12 3/26 4/9 4/23 5/7 5/21 Source: Morgan Stanley Research 6/4 6/18 7/2 7/16 Days 7/30 8/13 8/27 9/10 9/24 10/8 10/22 11/5 11/19 12/3 12/17 12/ Jan 15-Jan 29-Jan 12-Feb 26-Feb 12-Mar 26-Mar 9-Apr 23-Apr 7-May 21-May 4-Jun 18-Jun 2-Jul 16-Jul 30-Jul 13-Aug 27-Aug 10-Sep 24-Sep 8-Oct 22-Oct 5-Nov 19-Nov 3-Dec 17-Dec 31-Dec

14 Railroads YOY Change in Key Rail Traffic Commodities 15% 10% 5% % YOY CHANGE 0% -5% -10% -15% -20% -25% Week 1 Week 5 Week 9 Week 13 Week 17 Week 21 Week 25 Note: Trailing 4-week averages Week 29 Week 33 Week 37 Week 41 Week 45 Week 49 Week 1 Week 5 Week 9 Week 13 Week 17 Week 21 Source: Association of American Railroads Economically-sensitive Traffic Motor Vehicle Traffic Coal Traffic Intermodal Traffic Week 25 Week 29 Week 33 Week 37 Week 41 Week 45 Week 49 Week 1 Week 5 Week 9 Week 13 Week 17 Week 21 Week 25 Week 29 Week 33

15 Air Freight & Surface Transportation Industry and Valuation Overview September 2003 James J. Valentine, CFA (312) MORGAN STANLEY NORTH AMERICAN FREIGHT TRANSPORTATION EQUITY RESEARCH TEAM Research Associate Sector Name Telephone address Chad Bruso, CFA Air Freight Christopher Leshock Railroads Mike Manelli Trucking

16 Air Freight & Surface Transportation Clauses ANALYST STOCK RATINGS Overweight (O or Over). The stock s total return is expected to exceed the average total return of the analyst s industry (or industry team s) coverage universe, on a risk-adjusted basis, over the next months. Equal-weight (E or Equal). The stock s total return is expected to be in line with the average total return of the analyst s industry (or industry team s) coverage universe, on a risk-adjusted basis, over the next months. Underweight (U or Under). The stock s total return is expected to be below the average total return of the analyst s industry (or industry team s) coverage universe, on a risk-adjusted basis, over the next months. More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst s view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner. ANALYST INDUSTRY VIEWS Attractive (A). The analyst expects the performance of his or her industry coverage universe to be attractive vs. the relevant broad market benchmark over the next months. In-Line (I). The analyst expects the performance of his or her industry coverage universe to be in line with the relevant broad market benchmark over the next months. Cautious (C). The analyst views the performance of his or her industry coverage universe with caution vs. the relevant broad market benchmark over the next months. The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated ( Morgan Stanley ). This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. This report is not an offer to buy or sell any security or to participate in any trading strategy. Morgan Stanley, Morgan Stanley DW Inc., affiliate companies and/or their employees may have investments in securities or derivatives of securities of companies mentioned in this report, and may trade them in ways different from those discussed in this report. Derivatives may be issued by Morgan Stanley or associated persons. Within the last 12 months, Morgan Stanley, Morgan Stanley DW Inc. or an affiliate managed or co-managed a public offering of securities of CP Ships LTD, Ryder System, Union Pacific and United Parcel Service. Within the last 12 months, Morgan Stanley, Morgan Stanley DW Inc. or an affiliate has received compensation for investment banking services from Burlington Northern SF, CNF Inc., CP Ships LTD, CSX Corporation, Canadian Pacific Railway, Kansas City Southern, Norfolk Southern, Ryder System, US Freightways, Union Pacific, United Parcel Service and Werner Enterprises. 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