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Cowen Private Trucking Round-Table 'Most Negative' in Several Years

October 7, 2015 7:38 AM EDT
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Transportation analysts at Cowen said takeaways from its private trucking conference call Tuesday are the most negative they've heard in several years.

"In several years of doing this call, mostly on a quarterly basis, Tuesday's edition was perhaps the most negative," analyst led by Jason Seidl said. "All three participating executives indicated that current spot truckload rates are extremely soft."

He added, "What is more alarming is that the carriers do not appear to expect much in the way of contractual rate increases in the remainder of the year and 2016."

"While one executive noted that his company will still initiate pricing discussions asking for 4-5% contractual increases, he acknowledged that the company is likely to achieve much lower rates than that. He also noted that increases for 2015 "do not exist" and the spot market has been particularly soft in October. The logistics executive echoed similar, if not more subdued, sentiment, noting that his company is unlikely to ask for price increases in 2016."

The analyst said while the negative call may already be reflected in the current TL stock prices, the call represents a clear deterioration from insight we gained as recently as a couple of weeks ago. They said this poses additional risk to 3Q15 earnings and outlook commentaries in the trucking space.

They believe Knight Transportation (NYSE: KNX)) may be best positioned in the space as the highest quality name; and Swift Transportation (NYSE: SWFT), which has already lowered guidance, may have limited downside from this point.

On a retail perspective, the commentary may signal a cautious 2nd-half 2015 for the retail sector, the analysts said. A silver-lining is that flat to minimal contractual rate increases for 2016 (vs. prior estimate of ~+4%) could drive an incremental +20-50bps operating margin benefit if freight as a percentage of COGS is 5-15%. The firm's favorite retail names include: Signet Jewelers (NYSE: SIG), Restoration Hardware (NYSE: RH) and Target (NYSE: TGT).



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