airfreight, airlines, logistics, & maritime industry 2017 airfreight, airlines, logistics, &...
TRANSCRIPT
August 2017
Airfreight, Airlines, Logistics, & Maritime Industry
Jack Atkins
Managing Director
Stephens Inc.
(501) 377-2298
© 2017 Stephens Inc.
The analyst primarily responsible for the preparation of the content of this presentation certifies that (i) all views expressed in
this presentation accurately reflect the analyst’s personal views about the subject company and securities, and (ii) no part of
the analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views
expressed by the analyst in this presentation. See important disclosures and analyst certification on page 28 of this
presentation. This presentation constitutes a compendium report (covers six or more subject companies). As such, Stephens
Inc. chooses to provide specific disclosures for the companies mentioned by reference. To access current disclosures for the
companies in this presentation, clients should refer to https://stephens2.bluematrix.com/sellside/Disclosures.action or
contact your Stephens Inc. representative for additional information.
111 Center Street Little Rock, AR 72201 / 501-377-2000 / 800-647-9691 / stephens.com / Member NYSE, SIPC
Stephens Transportation Coverage List
2
Jack Atkins, AnalystAirfreight & Logistics
501-377-2298
Company Name Ticker Page #
Atlas Air Worldwide Holdings, Inc. AAWW 6
Air Transport Services Group, Inc. ATSG 7
Expeditors International of Washington, Inc. EXPD 8
FedEx Corporation FDX 9
United Parcel Service, Inc. Class B UPS 10
American Airlines Group, Inc. AAL 12
Delta Air Lines, Inc. DAL 13
Southwest Airlines Co. LUV 14
United Continental Holdings, Inc. UAL 15
C.H. Robinson Worldwide, Inc. CHRW 17
Echo Global Logistics, Inc ECHO 18
Forward Air Corporation FWRD 19
Landstar System, Inc. LSTR 20
World Fuel Services Corporation INT 21
XPO Logistics, Inc. XPO 22
Kirby Corporation KEX 24
Matson, Inc. MATX 25
Airfreight
Airlines
Logistics
Maritime
Brad Delco, Analyst Justin Long, AnalystTruckload & Less-Than-Truckload Railroads & Transportation Equipment
[email protected] [email protected]
501-377-8057 501-377-2036
Company Name Ticker Company Name Ticker
ArcBest Corporation ARCB American Railcar Industries, Inc. ARII
Celadon Group, Inc. CGI Canadian National Railway Company CNI
Covenant Transportation Group, Inc. Class A CVTI Canadian Pacific Railway Limited CP
Heartland Express, Inc. HTLD CSX Corporation CSX
J.B. Hunt Transport Services, Inc. JBHT Dana Incorporated DAN
Knight Transportation, Inc. KNX Fortress Transportation & Infrastructure FTAI
Marten Transport, Ltd. MRTN FreightCar America, Inc. RAIL
Old Dominion Freight Line, Inc. ODFL GATX Corporation GATX
Rush Enterprises, Inc. Class A RUSHA Genesee & Wyoming, Inc. GWR
Saia, Inc. SAIA Greenbrier Companies, Inc. GBX
Swift Transportation Company Class A SWFT Hub Group, Inc. HUBG
USA Truck, Inc. USAK Kansas City Southern KSU
Wabash National Corporation WNC NN, Inc. NNBR
Werner Enterprises, Inc. WERN Norfolk Southern Corporation NSC
YRC Worldwide Inc. YRCW Ryder System, Inc. R
Stoneridge, Inc. SRI
Trinity Industries, Inc. TRN
Union Pacific Corporation UNP
WABCO Holdings Inc. WBC
Wabtec Corp. WAB
Valuation Table: Airfreight, Airlines, Logistics, Maritime (Dollars in Millions, Except per Share)
Note: Equity value calculated from diluted shares outstanding using the treasury method. Note: Airlines (AAL, DAL, LUV, UAL) represent EV / NTM EBITDAR multiples. Note: Airline Enterprise value includes capitalized rent @ 7x operating rent Source: Stephens estimates and FactSet Research Systems
3
Price Price Equity Ent. Operating EPS P/E Multiple EV / NTM
Rating Target 8/24/17 Value Value 2017E 2018E 2017E 2018E EBITDA Multiple
Airfreight
United Parcel Service, Inc. Class B UPS EW $115.00 $113.35 $98,910 $113,542 $5.99 $6.45 18.9x 17.6x $11,036 10.3x
FedEx Corporation FDX OW 246.00 206.67 57,454 68,416 13.50 15.35 15.3 13.5 9,923 6.9
Expeditors International of Washington, Inc. EXPD EW 55.00 54.95 10,117 9,003 2.40 2.55 22.9 21.5 753 11.9
Atlas Air Worldwide Holdings, Inc. AAWW EW/V 64.00 63.25 1,606 3,481 4.90 --- 12.9 N/A --- N/A
Air Transport Services Group, Inc. ATSG OW 27.00 21.02 1,264 1,729 0.84 1.18 25.2 17.8 305 5.7
Mean 19.0x 17.6x --- 8.7x
Median 18.9x 17.7x --- 8.6x
Airlines
Delta Air Lines, Inc. DAL OW $66.00 $45.21 $25,998 $52,252 $5.39 $6.20 8.4x 7.3x $8,323 6.3x
American Airlines Group, Inc. AAL EW 56.00 42.92 37,214 45,501 5.11 6.15 8.4 7.0 9,330 4.9
Southwest Airlines Co. LUV OW 70.00 50.71 33,821 35,290 3.68 4.65 13.8 10.9 5,803 6.1
United Continental Holdings, Inc. UAL EW 80.00 61.48 21,563 34,618 7.70 8.90 8.0 6.9 7,298 4.7
Mean 9.6x 8.0x --- 5.5x
Median 8.4x 7.1x --- 5.5x
Logistics
C.H. Robinson Worldwide, Inc. CHRW EW $73.00 $66.87 $9,583 $10,651 $3.35 $3.65 20.0x 18.3x $910 11.7x
XPO Logistics, Inc. XPO EW 63.00 56.75 8,436 13,016 1.90 2.70 29.8 21.0 1,498 8.7
World Fuel Services Corporation INT EW 37.00 33.84 2,367 2,859 2.30 2.95 14.7 11.5 381 7.5
Landstar System, Inc. LSTR EW 88.00 81.80 3,448 3,293 3.58 4.15 22.8 19.7 309 10.7
Forward Air Corporation FWRD OW 61.00 50.36 1,529 1,540 2.32 2.60 21.7 19.4 160 9.6
Echo Global Logistics, Inc ECHO OW 22.00 13.45 392 582 0.62 1.00 21.7 13.5 66 8.8
Mean 21.8x 17.2x --- 9.5x
Median 21.7x 18.8x --- 9.2x
Maritime
Kirby Corporation KEX EW $66.00 $61.70 $3,329 $3,778 $2.00 $2.35 30.8x 26.2x $403 9.4x
Matson, Inc. MATX EW 23.00 23.81 1,027 1,792 1.60 1.90 14.9 12.5 306 5.9
Mean 22.8x 19.4x --- 7.6x
Median 22.8x 19.4x --- 7.6x
Stock Performance & Valuations
YTD Stock Performance
2017 Stock Performance Relative to the S&P
NTM P/E Valuation Multiples
24% 24%
12%
2%
-2%-5% -5%
-10%-13%
-15% -15%-17% -18%
-23%
-37%
-41%
-55%-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
AT
SG
XP
O
AA
WW
FD
X
FW
RD
EX
PD
LU
V
UP
S
LS
TR
AA
L
DA
L
KE
X
CH
RW
UA
L
INT
MA
TX
EC
HO
YT
D S
toc
k P
erf
orm
an
ce
Re
lati
ve
to
S&
P 5
00
Source: Stephens estimates and FactSet Research Systems 4
-2%
0 x
5x
10x
15x
20x
25x
30x
AAL AAWW ATSG CHRW DAL ECHO EXPD FDX FWRD INT KEX LSTR LUV MATX UAL UPS
Current NTM Multiple 5-Yr. Avg. NTM Multiple
Global Airfreight Industry Overview
Source: IATA, AAPA, Drewry, HKIA, Semiconductor Industry Association
Key Themes International Air Transport Association
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
25%
2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
FTK ATK
Association of Asia Pacific Airlines
Demand Improving. For much of the past five years (excluding 2014), global airfreight demand growth has been tepid, growing in the low-single digit range. That said, demand trends have improved in recent months and we expect the continued adoption of the e-commerce channel by consumers to provide a tailwind for the industry over the next several years.
• Capacity. Excluding 2014, global airfreight
capacity growth has outpaced global demand growth, largely due to the delivery of new passenger aircraft. While capacity growth has slowed in recent months, we believe it is too early to make a call that this is a change in fundamentals.
• Rates. With slowing capacity growth and strong
demand trends, industry spot market carrier rates have remained strong during YTD. We would expect spot market rates to remain strong as long as capacity remains in check.
50%
55%
60%
65%
70%
75%
(10%)
0%
10%
20%
30%
200820092010201120122013201420152016 YTD
FTK ATK Load Factor
Drewry Shanghai to Los Angeles Rate Hong Kong International Airport Cargo Data
Global Semiconductor Shipments
-60%
-40%
-20%
0%
20%
40%
$2.00
$3.00
$4.00
$5.00
$6.00
Price/Kilo Y/Y Change
-25%
-15%
-5%
5%
15%
25%
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Loaded Unloaded Total Y/Y % Change
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep-
11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
Sep-
14
Nov
-14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Global FTKs Global Semi Shipments
5
Atlas Air Worldwide Holdings (AAWW) Equal-Weight/Vol. Rated
$64 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
One Year Price / Volume Chart
Source: Company reports, Stephens estimates and FactSet Research Systems
5-Year NTM P/E Chart
Annual Free Cash Flow Earnings Historically 2H Loaded
37%
50%
34%35%
26% 29%
44%
25%28%
63%
50%
66%
65%
74% 71%
56%
75%
72%
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
2009 2010 2011 2012 2013 2014 2015 2016 2017E
$(700)
$(600)
$(500)
$(400)
$(300)
$(200)
$(100)
$-
$100
$200
$300
2009 2010 2011 2012 2013 2014 2015 2016
Highly Levered to Oversupplied Airfreight Market. A significant portion of AAWW’s revenue (~50%) is generated from its Charter business. This business is sensitive to global spot airfreight rates and can materially impact quarterly results.
Significant Seasonality Reduces EPS Visibility. Historically, AAWW generates a majority of its annual EPS in the 2H of the year due to the timing of peak season, which decreases the visibility of earnings.
Growth Dependent on Large Capital Outlays. Given the asset-intensity of AAWW’s business model, it is difficult for the Company to drive organic growth without deploying large amounts of capital on new aircraft.
66% Average
6
Free Cash Flow = Operating Cash – CapEx – Purchase Deposits for Aircraft and Flight Equipment
Ticker AAWW
Price (as of 8/24/17) 63.25$
Fully Diluted Shares Out (mil.) 25.4
52-Week High 67.75$
52-Week Low 34.81$
Market Cap (mil.) 1,606.3$
Net Debt 1,874.5
Enterprise Value 3,480.8$
Average Daily Volume 375,277
Short Interest (as % of Float) 11.5%
Debt/Cap 57.4%
Free Cash Flow per Share (4.42)$
Dividend Yield 0.0%
Book Value per Share 60.75$
Air Transport Services Group (ATSG) Overweight Rated $27 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
One Year Price / Volume Chart
Source: Company reports, Stephens estimates and FactSet Research Systems
5-Year NTM P/E Chart
Annual Free Cash Flow Significant Growth Potential
Agreement With Amazon. ATSG announced an agreement with Amazon in which it will provide 20 767 freighter aircraft to Amazon on 5-7 year leases. We estimate that each aircraft could add ~$0.04 to annual EPS.
Multiple Growth Drivers. Outside additional aircraft placements, ATSG has other potential growth drivers in its recent acquisition of PEMCO and its joint venture in China, which is expected to gain regulatory approval in 2H17.
Additional Aircraft Demand Outside of Amazon. Aside from its agreement with Amazon, ATSG is seeing increased demand from customers for its 767F asset. The Company expects to deploy five 767F to customers in 2H17, with this feedstock already secured.
$(100)
$(50)
$-
$50
$100
$150
$200
2011 2012 2013 2014 2015 2016 2017E 2018E
7
30
40
50
60
70
80
90
$-
$50
$100
$150
$200
$250
$300
$350
2011 2012 2013 2014 2015 2016 2017E 2018E
Fle
et C
ou
nt
Ad
j. E
BIT
DA
(m
il.)
Adj. EBITDA Fleet Count
Ticker ATSG
Price (as of 8/24/17) 21.02$
Fully Diluted Shares Out (mil.) 60.1
52-Week High 25.75$
52-Week Low 12.94$
Market Cap (mil.) 1,263.6$
Net Debt 465.3
Enterprise Value 1,728.9$
Average Daily Volume 391,183
Short Interest (as % of Float) 2.0%
Debt/Cap 65.4%
Free Cash Flow per Share N/M
Dividend Yield 0.0%
Book Value per Share 4.29$
Expeditors International (EXPD) Equal-Weight Rated
$55 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
High-Quality, Nimble Forwarder. EXPD is a global freight forwarder with a diverse service offering and geographic footprint, with leverage to the Transpacific lane. EXPD has $974 mil. of cash and no debt.
Strategic Initiatives. The Company is executing on a multi-year strategic plan aimed at driving double-digit operating income and EPS growth over the next several years.
Challenging Margin Comps. EXPD faces difficult y/y comparisons for much of 2017 after a strong 2015 and 2016. In 1H17, margin comparisons are difficult due to soft spot market carrier rates that declined significantly due to overcapacity in both the global airfreight and ocean freight markets.
Industry Leading Returns Difficult Y/Y Comparisons In 1H17
0%
10%
20%
30%
40%
50%
60%
2009 2010 2011 2012 2013 2014 2015 2016
ROIC ROE
15%
20%
25%
30%
35%
(15%)
(10%)
(5%)
0%
5%
10%
15%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Volume Net Rev Margin
15%
20%
25%
30%
35%
(4%)
(2%)
0%
2%
4%
6%
8%
10%
12%
14%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Volume Net Rev Margin
Air
frei
ght
Oce
an F
reig
ht
8
Ticker EXPD
Price (as of 8/24/17) 54.95$
Fully Diluted Shares Out (mil.) 184.1
52-Week High 59.90$
52-Week Low 47.23$
Market Cap (mil.) 10,117.5$
Net Debt (1,114.9)
Enterprise Value 9,002.5$
Average Daily Volume 1,127,924
Short Interest (as % of Float) 6.2%
Debt/Cap 0.0%
Free Cash Flow per Share 2.20$
Dividend Yield 1.5%
Book Value per Share 10.89$
FedEx Corporation (FDX) Overweight Rated $246 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Express Operating Profit Improvement Investments Weighing on Ground Margins
Multiple EPS Growth Drivers. FDX completed its $1.6 bil. profit improvement initiative at Express in F2016. The Company now expects to generate $1.2 bil.-$1.5 bil. of profit improvement by FY20. We note this guidance includes the expected TNT synergies.
Capital Allocation. With $3.2 bil. of cash, FDX is well positioned to invest in its business and return cash to shareholders through its quarterly dividend and share repurchases.
Acquisition of TNT Express. The deal closed on May 25th and the Company expects the transaction to be immediately accretive to annual EPS. FDX expects the integration to take four years and expects to exit the integration with $750 mil. of synergies from the deal.
9
FY13 LTM
Total Package Volume 996,285 1,073,458
Total Operating Expense (mil.) 26,000$ 23,807$
Operating Expense per Package 26.10$ 22.18$
Fuel Expense (mil.) 4,130$ 2,043$
Operating Expense ex. Fuel (mil.) 21,870$ 21,764$
Per Package Operating Expense ex. Fuel 21.95$ 20.27$
Per Package Cost Savings 1.68$
Operating Profit Improvement ex. Fuel (mil.) 1,800.5$
11.5%
13.8%
15.6%
18.4% 18.5% 17.4%
16.7%
13.7% 12.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2009 2010 2011 2012 2013 2014 2015 2016 2017E Target
Targeting Mid-Teens Operating Margin
Ticker FDX
Price (as of 8/24/17) 206.67$
Fully Diluted Shares Out (mil.) 278.0
52-Week High 219.99$
52-Week Low 158.20$
Market Cap (mil.) 57,454.4$
Net Debt 10,962.0
Enterprise Value 68,416.4$
Average Daily Volume 1,238,896
Short Interest (as % of Float) 1.8%
Debt/Cap 48.2%
Free Cash Flow per Share (0.69)$
Dividend Yield 1.0%
Book Value per Share 59.47$
United Parcel Service (UPS) Equal-Weight Rated
$115 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Annual EPS Growth Lags Peer Growth Expectations From 2017 Analyst Day
High-Quality Industrial Company. UPS boasts an integrated global delivery network that utilizes significant technology to improve efficiency. The Company also produces industry leading returns with a 2016 ROIC of 18.7% and returns a significant amount of capital to shareholders through dividends and share repurchases.
Slow Growth. Given the size, density and fixed cost nature of UPS’ business model, its earnings growth rate has lagged its closest peer over the past several years and we do not see a near-term catalyst to accelerate the growth rate.
Valuation Full. Despite a slow growth profile, UPS trades at a premium to both its 5-year average NTM P/E multiple and FDX.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2011 2012 2013 2014 2015 2016
UPS FDX
UPS: 5.7% CAGR FDX: 18.4% CAGR
10
$49.5
$53.1 $54.1 $55.4
$58.2 $58.4 $60.9
$64.3 $69.5
$72.2
$40
$45
$50
$55
$60
$65
$70
$75
2010 2011 2012 2013 2014 2015 2016 2017E 2018 2019
Revenue: 4% - 6% CAGR
$3.48
$4.35 $4.53 $4.57
$4.75
$5.43
$5.75 $5.95 $6.56
$7.20
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
EPS: 5% - 10% CAGR
Ticker UPS
Price (as of 8/24/17) 113.35$
Fully Diluted Shares Out (mil.) 872.6
52-Week High 120.44$
52-Week Low 102.12$
Market Cap (mil.) 98,909.9$
Net Debt 14,632.5
Enterprise Value 113,542.3$
Average Daily Volume 2,484,559
Short Interest (as % of Float) 1.3%
Debt/Cap 93.2%
Free Cash Flow per Share (0.36)$
Dividend Yield 2.9%
Book Value per Share 1.43$
Passenger Airline Industry Overview
Source: DOT data, Stephens estimates and FactSet Research Systems
Key Themes Industry PRASM Trend
Growing Capacity on Fewer Flights
Operating Margin in a Recession Scenario Operating Margin in a Oil Spike Scenario
Attractive NTM P/E Valuation Relative to Other Transportation Verticals
Investors Focused on PRASM Turning Positive. This key metric remains top of mind for investors, and the stocks have reacted to Company commentary on expectations for 2017 performance. All four of the airlines on our coverage list guided to positive 2Q unit revenue and we expect continued y/y improvement in PRASM in FY17.
Capacity Growth. Despite the low fuel price
environment, airlines have taken a disciplined approach to capacity growth, with a majority coming through up-gauging. That said, UAL’s increase to its capacity plans makes us cautious around the potential for a competitive response.
Attractive Valuation. Airline stocks trade at a
significant discount to other asset-heavy transportation companies, a gap we believe closes over the next 18-24 months and unit revenue trends improve.
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
PRASM Y/Y % Change
(8%)
(6%)
(4%)
(2%)
0%
2%
4%
6%
8%
10%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Flights ASM
23.1x 21.2x
19.2x 18.4x 18.1x
11.8x
7.8x 7.3x 7.3x
0 x
5x
10x
15x
20x
25x
TL IMC LTL Logistics Class 1 Rail LUV DAL AAL UAL
11
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
American Airlines Group (AAL) Equal-Weight Rated
$56 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 3-Year NTM P/E Chart
Ongoing US Airways Integration. AAL is in the middle-innings of its integration, having captured all of the expected cost synergies and about half of the revenue synergies.
Network Operations Improving. Following the merger with US Airways, AAL has been investing heavily in its network, both aircraft and non-aircraft, to improve reliability. While progress has been made, there is still work to be done over the next couple of years.
Balance Sheet. AAL is taking advantage of low interest rates and using debt to finance its refleeting initiative, which is a different strategy than its peers. While leverage has declined due to better financial performance, the Company’s debt balance continues to increase.
Network Operating Metrics Improving Different Balance Sheet Strategy
68%
70%
72%
74%
76%
78%
80%
82%
95%
96%
97%
98%
99%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Completion Factor On-Time %
2x
3x
4x
5x
6x
7x
8x
9x
10x
11x
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2010 2011 2012 2013 2014 2015 2016
Total Debt Debt / LTM EBITDA
DAL’s On-Time % was 86%
12
Ticker AAL
Price (as of 8/24/17) 42.92$
Fully Diluted Shares Out (mil.) 520.0
52-Week High 54.48$
52-Week Low 33.90$
Market Cap (mil.) 22,317.0$
Net Debt 17,973.0
Enterprise Value 40,290.0$
Average Daily Volume 5,230,707
Short Interest (as % of Float) 7.4%
Debt/Cap (508.6%)
Free Cash Flow per Share N/M
Dividend Yield 0.9%
Book Value per Share 7.27$
Delta Air Lines (DAL) Overweight Rated $66 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Multi-Year EPS Growth Drivers. DAL expects $2.8 bil. of incremental, high-margin revenue over the next several years from its Other Revenue initiatives. In addition, a growing International presence is expected to yield additional investment income.
Variable Cost Model. In a fixed-cost industry, DAL boasts a highly variable cost model, with ~55% variable costs. A low union presence in its workforce and large number of unencumbered aircraft provide flexibility in the cost structure.
Attractive Valuation. DAL trades below industry peers, its 5-year average NTM P/E multiple and other high-quality industrial companies despite expectations for 15%+ EPS growth and several internal growth initiatives.
EPS Power From Other Revenue Initiatives Variable Cost Business Model
Incremental Revenue:
Credit Card 1,600$
Branded Fares 1,200
Total 2,800$
Incremental Margin 85%
Operating Income 2,380$
Taxes @ 35% 833
Net Income 1,547$
Diluted Shares 775
Potential EPS Impact 2.00$
13
Only 18% of workforce is unionized
- less work rules, better pay (industry leading
wages)
Provides network efficiency and flexibility
- operates oldest Mainline fleet in the industry
- lower maintenance expense than peers despite
older fleet
- flexibility to meet customer demand without
decreasing utilization
ATL is considered a "lower-cost" hub
- lower landing fees than other major cities
- capacity constraint limits competition in key
market- less weather delays allow for increased network
reliability
Labor
Unencumbered
Aircraft
Low-Cost Hub
Ticker DAL
Price (as of 8/24/17) 45.21$
Fully Diluted Shares Out (mil.) 739.7
52-Week High 55.75$
52-Week Low 35.90$
Market Cap (mil.) 33,441.3$
Net Debt 6,026.0
Enterprise Value 39,467.3$
Average Daily Volume 7,519,387
Short Interest (as % of Float) 2.3%
Debt/Cap (158.9%)
Free Cash Flow per Share 1,300.00$
Dividend Yield 2.7%
Book Value per Share 18.31$
Southwest Airlines (LUV) Overweight Rated $70 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Differentiated Business Model. LUV operates a point-to-point network with a low-fare model and only operates one type of aircraft, the 737. This model reduces the fixed costs associated with a major hub and allows for a flexible flight schedule.
Multi-Year Growth Drivers. LUV renegotiated its credit card agreement in 3Q15 and has realized a revenue tailwind of ~$125 mil. per quarter. In addition, the Company is in the midst of modernizing its fleet and plans to launch a new domestic reservation system in 2017.
Investment Grade Balance Sheet. LUV is the only airline that boasts an investment grade rating from all three major credit agencies.
RASM Growth Outlook Improving Significant Operating Margin Expansion
1%
(6%)
(4%)
(2%)
0%
2%
4%
6%
8%
10%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17E
5.8%
21.1%
0%
5%
10%
15%
20%
25%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
14
3Q17 RASM Guidance of ~1% y/y
Ticker LUV
Price (as of 8/24/17) 50.71$
Fully Diluted Shares Out (mil.) 617.1
52-Week High 64.39$
52-Week Low 36.05$
Market Cap (mil.) 31,291.2$
Net Debt (57.0)
Enterprise Value 31,234.2$
Average Daily Volume 5,621,177
Short Interest (as % of Float) 1.2%
Debt/Cap 1228.8%
Free Cash Flow per Share 1,833.00$
Dividend Yield 1.0%
Book Value per Share 13.86$
United Continental Holdings (UAL) Equal-Weight Rated
$80 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Network Operational Improvement. Following its merger with Continental, UAL’s network performance metrics have lagged peers, which has weighed on financial results. While network reliability is improving, there is still a large gap between UAL and industry leaders.
New Management Team in Place. UAL’s CEO Oscar Munoz has been busy the past several months reshaping his management team. Over the past year, UAL has added a new CFO, President and Chief Commercial Officer.
Balance Sheet Improving. UAL has significantly improved its financial position over the past several years and we believe could be upgraded to investment grade in the medium term.
3Q17 PRASM Guidance $4.8 bil. of Value From Strategic Initiatives
(7.4%) (6.7%)
(5.9%)
(1.5%)
0%
2.1%
(10%)
(5%)
0%
5%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17E
15
$600
$1,000
$1,000 $300
$900 $300
$700
$-
$1,000
$2,000
$3,000
$4,000
$5,000
Do
lla
rs i
n m
il.
-1% - +1% y/y
Ticker UAL
Price (as of 8/24/17) 61.48$
Fully Diluted Shares Out (mil.) 318.1
52-Week High 83.04$
52-Week Low 46.67$
Market Cap (mil.) 19,555.5$
Net Debt 8,449.5
Enterprise Value 28,005.0$
Average Daily Volume 4,285,576
Short Interest (as % of Float) 4.3%
Debt/Cap 508.9%
Free Cash Flow per Share 125.73$
Dividend Yield 0.0%
Book Value per Share 30.90$
Logistics Industry Overview
Source: Internet Truckstop, Armstrong and Associates, Cass Transportation Index, FRED data
Key Themes Dry Van Rates
3PL Market Share (bil.) Manufacturing ISM-PMI Data
Cass Freight Index Inventory Levels Remain Elevated
Flatbed Rates
$100
$150
$200
$250
$300
$350
$400
Asset-Based Trucking Brokerage
30
35
40
45
50
55
60
65
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
Jan
-00
De
c-00
No
v-0
1
Oct
-02
Sep
-03
Au
g-0
4
Jul-
05
Jun
-06
Ma
y-0
7
Ap
r-0
8
Ma
r-09
Feb
-10
Jan
-11
De
c-11
No
v-1
2
Oct
-13
Sep
-14
Au
g-1
5
Jul-
16
Jun
-17
Inve
nto
ry t
o S
ale
s
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
16
Spot Market Demand. So far in 2017, the operating environment remains challenging with soft spot market demand. Our sense is the market is in supply/demand equilibrium with geographic pockets of strength.
Spot Rates Turn Positive. With fuel prices
moving higher and y/y comparisons easing, dry van spot market rates turned positive y/y in 3Q16. After starting soft, flatbed spot rates have shown recent strength with improving PMI data.
Net Revenue Margin. Across the board, brokers
took advantage of the soft carrier rates in 2015 and 1H16 to expand net revenue margins. While we expect y/y net revenue margin pressure in 1H17, we believe there is potential for near-term net revenue margin outperformance given soft spot market rates.
9% CAGR
Current: 1.38 5-Year Avg:1.32
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
1/5
1/26
2/16 3/
9
3/30
4/20
5/11 6/
1
6/22
7/13 8/
3
8/24
9/14
10/5
10/2
6
11/1
6
12/7
12/2
8
Dry
Van
Spo
t Ra
tes
2014 2015 2016 2017 5 Year Average
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
1/5
1/26
2/16 3/9
3/30
4/20
5/11 6/1
6/22
7/13 8/3
8/24
9/14
10/5
10
/26
11
/16
12/7
12
/28
Flat
bed
Spot
Rat
es
2014 2015 2016 2017 5 Year Average
C.H. Robinson Worldwide (CHRW) Equal-Weight Rated
$73 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Margins Beginning To Come Under Pressure Industry Leading Capital Returns
30%
35%
40%
45%
50%
15%
20%
25%
30%R
OE
RO
IC
ROIC ROE
-600
-400
-200
0
200
400
600
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
Facing Challenging Margin Comparisons. CHRW’s contractual business mix has led to y/y net revenue margin expansion in each of the past eight quarters. Margins in 2H15 approached historical levels, creating difficult y/y comparisons beginning in 2Q16.
Excellent “Rainy Day” Stock. CHRW is a diversified global logistics company with a highly variable cost model, which allowed the Company to report y/y EPS growth even during the 2008 recession. This model also generates a significant amount of cash flow.
Valuation Historically Attractive. The stock is trading slightly below its 5-year average NTM P/E multiple .
17
Ticker CHRW
Price (as of 8/24/17) 66.87$
Fully Diluted Shares Out (mil.) 143.3
52-Week High 81.16$
52-Week Low 63.41$
Market Cap (mil.) 9,582.6$
Net Debt 1,068.8
Enterprise Value 10,651.4$
Average Daily Volume 1,978,536
Short Interest (as % of Float) 15.1%
Debt/Cap 50.1%
Free Cash Flow per Share 2.47$
Dividend Yield 2.7%
Book Value per Share 9.41$
ECHO Global Logistics (ECHO) Overweight Rated $22 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Organic Truckload Volume Growth Opportunity For Net Operating Leverage
Continued Market Share Gains. Despite a sluggish spot market demand environment, ECHO has reported double-digit organic TL volume growth in nine consecutive quarters. We expect this trend to continue as the ELD mandate begins to tighten capacity.
Command Integration Complete. ECHO completed the IT integration of Command during 4Q16. Now that this is complete, the Company can begin extracting the $200 mil.-$300 mil. of revenue synergies from the deal.
Investment in Talent. ECHO’s investment in its sales force has contributed to its market share gains. We expect productivity and efficiency of the sales force to improve with tenure.
(5%)
0%
5%
10%
15%
20%
25%
30%
35%
40%
1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17
CHRW ECHO
18
17.5%
19.7% 20.2%
18.3%
16.3%
20.0%
21.9%
19.0% 17.8%
21.1%
19.4%
11.0%
7.4%
11.9%
0%
5%
10%
15%
20%
25%
1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17
Ticker ECHO
Price (as of 8/24/17) 13.45$
Fully Diluted Shares Out (mil.) 29.2
52-Week High 28.90$
52-Week Low 13.00$
Market Cap (mil.) 392.5$
Net Debt 189.1
Enterprise Value 581.6$
Average Daily Volume 484,284
Short Interest (as % of Float) 10.7%
Debt/Cap 36.3%
Free Cash Flow per Share (0.20)$
Dividend Yield 0.0%
Book Value per Share 12.60$
Forward Air Corporation (FWRD) Overweight Rated $61 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Core Linehaul Pricing Trend Potential M&A to Expand Footprint
Dominant Market Position. Following its acquisition of Towne (FWRD’s largest competitor), we estimate that FWRD has ~45% market share of its core Expedited LTL market with superior geographic density to its competitors.
Opportunity for Meaningful Pricing Power. We expect continued core linehaul yield improvement in FY17 as FWRD benefits from increased fuel surcharge revenue and the elimination of a notorious low-cost provider from the market.
Supplementing Organic Growth With M&A. FWRD has utilized its balance sheet to drive EPS growth in recent years, a trend we expect to continue in FY17.
(0.1%)
4.0% 4.2% 4.4%
1.3%
(1.6%)
(3.5%)
(0.3%)
2.7%
3.5% 3.7%
(1.7%) (2.0%)
(3.0%) (4%)
(3%)
(2%)
(1%)
0%
1%
2%
3%
4%
5%
1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17
19
Ticker FWRD
Price (as of 8/24/17) 50.36$
Fully Diluted Shares Out (mil.) 30.4
52-Week High 56.52$
52-Week Low 40.07$
Market Cap (mil.) 1,528.9$
Net Debt 11.4
Enterprise Value 1,540.3$
Average Daily Volume 111,155
Short Interest (as % of Float) 1.6%
Debt/Cap 4.0%
Free Cash Flow per Share 2.93$
Dividend Yield 1.2%
Book Value per Share 16.86$
Landstar Systems, Inc. (LSTR) Equal-Weight Rated
$88 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
End Market Mix Solid Return and Cash Flow Profile
Significant Leverage to Industrial End Markets. LSTR’s flatbed business (~38% of revenue) exposes the Company to changes (and current softness) in the domestic industrial economy.
Differentiated Business Model. LSTR operates an agent based network that utilizes both in-house owner operators and 3rd party carriers. This model has leverage (both positive and negative) to fluctuations in spot market carrier rates.
Balance Sheet/Cash Flow/ Capital Returns. The Company has a solid balance sheet with net cash of $107.2 mil. LSTR’s business model generates a significant amount of free cash flow, which the Company uses to pay its quarterly dividend and repurchase shares.
As % of Revenue Y/Y Revenue
End Market 1Q17 1Q16 Growth
Consumer Durables 20.5% 21.5%
Machinery 14.4% 15.3%
Automotive 9.7% 8.7%
Building Products 8.6% 8.6%
Metals 6.7% 6.7%
AA&E, Hazmat 7.5% 8.8%
Foodstuffs 5.5% 5.2%
Energy 2.9% 3.1%
Other 24.2% 22.3%
20%
22%
24%
26%
28%
30%
32%
34%
36%
38%
40%
$-
$50
$100
$150
$200
$250
2008 2009 2010 2011 2012 2013 2014 2015 2016
Free Cash Flow ROIC
20
Ticker LSTR
Price (as of 8/24/17) 81.80$
Fully Diluted Shares Out (mil.) 42.1
52-Week High 90.80$
52-Week Low 65.05$
Market Cap (mil.) 3,447.5$
Net Debt (154.3)
Enterprise Value 3,293.2$
Average Daily Volume 308,607
Short Interest (as % of Float) 3.1%
Debt/Cap 16.3%
Free Cash Flow per Share 3.01$
Dividend Yield 0.5%
Book Value per Share 14.47$
World Fuel Services Corp. (INT) Equal-Weight Rated
$37 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Recent M&A Transactions Volume Growth Not Equating to EPS Growth
Tepid Organic EPS Growth. From 2010-2015, INT’s EPS CAGR was ~4%. That said, after adjusting for the acquisitions made during this time, we believe the organic EPS CAGR was actually -2%.
Challenging Marine Market Conditions. The lack of price volatility and low commodity prices are weighing on results in INT’s core Marine business. In addition, the Company has seen limited demand for its hedging services.
M&A Pipeline. We expect INT to remain active with its M&A growth strategy. In our opinion, we believe the Land business or Aviation business provide the most attractive opportunity given INT’s relatively small market position.
(25%)
(20%)
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
25%
30%
2011 2012 2013 2014 2015 2016
Y/Y Volume Growth Y/Y EPS Growth
21
Date Target Purchase Price (mil.)
Dec-10 Nordic Camp Supply $69
Jan-11 Ascent Aviation Group $42
Jun-01 Yacht Fuel Services $3
Dec-12 Multi Service Corp $137
Jan-14 Watson Petroleum $192
Jul-14 Colt International $63
Oct-15 Pester Marketing $70
Oct-15 Aircraft Fueling Locations $10
Feb-16 Aircraft Fueling Locations $260
Jun-16 PAPCO
Jun-16 APP Inc.
Ticker INT
Price (as of 8/24/17) 33.84$
Fully Diluted Shares Out (mil.) 69.9
52-Week High 47.49$
52-Week Low 32.28$
Market Cap (mil.) 2,366.5$
Net Debt 492.2
Enterprise Value 2,858.7$
Average Daily Volume 467,545
Short Interest (as % of Float) 3.1%
Debt/Cap 34.9%
Free Cash Flow per Share 1.67$
Dividend Yield 0.7%
Book Value per Share 28.82$
XPO Logistics (XPO) Equal-Weight Rated
$63 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart Recent Events Timeline
FCF Profile Improving NTM EV/EBITDA Multiples
Integration Risk. We believe there is significant risk with XPO’s roll-up strategy and question the level of integration between the businesses. In addition, the Company is attempting to integrate the two largest acquisitions in its history at the same time.
Significant Industrial Exposure. XPO’s acquisition of Con-way and Norbert significantly increased the Company’s exposure to both the domestic and European industrial economies. These two acquisitions also increased the cyclicality and asset-intensity of XPO’s business.
Balance Sheet. XPO has used a mixture of debt and equity to fund its growth strategy. As a result, the Company has net debt of $4.49 bil., which is 3.3x levered on its FY17 EBITDA guide.
4.6x
6.9x 7.1x
9.0x 9.0x 9.1x
10.0x
0 x
2x
4x
6x
8x
10x
12x
Airlines TL LTL IMC Logistics XPO Rail
22
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
$(200)
$(100)
$-
$100
$200
$300
$400
$500
$600
2015 2016 2017E 2018E
Adj. Free Cash Flow As a % of Adj. EBITDA
Date Event Purchase Price (mil.) Category
Jul-14 New Breed Logistics $615 Acquisition
Jul-14 Atlantic Central Logistics $37 Acquisition
Aug-14 Senior Note Offering $500 Debt Raise
Sep-14 Equity Private Placement $700 Equity Raise
Feb-15 Senior Note Offering $400 Debt Raise
Feb-15 UX Specialized Logistics $59 Acquisition
Apr-15 Norbert Dentressangle SA $3,500 Acquisition
May-15 Bridge Terminal Transport $100 Acquisition
Jun-15 Equity Private Placement $1,260 Equity Raise
Jun-15 Senior Note Offering $2,000 Debt Raise
Sep-15 Con-way $3,020 Acquisition
Jul-17 Forward Equity Offering $765 Equity Raise
Ticker XPO
Price (as of 8/24/17) 56.75$
Fully Diluted Shares Out (mil.) 148.7
52-Week High 65.44$
52-Week Low 31.68$
Market Cap (mil.) 8,435.9$
Net Debt 4,579.9
Enterprise Value 13,015.8$
Average Daily Volume 2,072,492
Short Interest (as % of Float) 16.4%
Debt/Cap 60.0%
Free Cash Flow per Share N/M
Dividend Yield 0.0%
Book Value per Share 26.19$
Maritime Industry Overview
Source: Drewry, UHERO, Port of Long Beach, Port of Oakland, Port of Los Angeles, FactSet Research Systems, FRED data
Key Themes Transpacific Eastbound Container Rate
West Coast Port Inbound Container Volume Hawaii Construction Data
Chemical Capacity Utilization Rail Chemical and Oil Volume
Asia-to-Europe Container Rate
Prefer Niche Providers With Competitive Advantages. Amid a challenging ocean freight and domestic barging operating environment, we prefer high-quality, market leaders.
Overcapacity in Non Jones Act Lanes. The
global ocean freight market, excluding Jones Act lanes, is in a state of structural overcapacity with sluggish demand trends.
Rates Pressure Easing. While overcapacity has
weighed on global ocean freight spot market carrier rates, especially in the Transpacific Eastbound lane and the Asia-to-Europe trade lane, 1Q rates showed further stability.
Chemical Demand Remains Robust. Due to low
domestic natural gas prices, chemical demand and utilization remains high. In addition, we are in the early stages of a planned $100 bil. domestic petrochemical plant buildout.
-100%
-50%
0%
50%
100%
150%
200%
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Y/Y
Cha
nge
Cont
aine
r Rat
e (F
EUs)
Rate per FEU Y/Y Change
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Y/Y
Ch
an
ge
Co
nta
iner
Ra
te (
TEU
s)
Rate per TEU Y/Y Change
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
50%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
Y/Y
% C
hang
e
Inbo
und
Cont
aine
r V
olum
e
Total Inbound Container Volume Y/Y% change
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Weekly
Ship
ments
Petroleum & Petroleum Products Chemicals
60
65
70
75
80
85
Apr-
05
Sep-0
5
Feb-0
6
Jul-06
Dec-0
6
May-0
7
Oct-07
Mar-
08
Aug-0
8
Jan-0
9
Jun-0
9
Nov-0
9
Apr-
10
Sep-1
0
Feb-1
1
Jul-11
Dec-1
1
May-1
2
Oct-12
Mar-
13
Aug-1
3
Jan-1
4
Jun-1
4
Nov-1
4
Apr-
15
Sep-1
5
Feb-1
6
Jul-16
Dec-1
6
% o
f Tota
l Pro
d. C
apacity U
tiliz
ed
23
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Private Building Permits % Residential Permits
Kirby Corporation (KEX) Equal-Weight Rated
$66 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Inland Marine Fundamentals Efficient Capital Structure
Core Market Stabilization. We believe fundamentals in the core Inland Marine market have stabilized. Utilization is in the low 80% range and contract pricing was flat sequentially. The number of crude barges being returned has flattened, potentially signaling a bottom in that end market.
Capital Allocation. KEX has been aggressive repurchasing shares, which the Company views as the best use of its cash. That said, we expect KEX to remain opportunistic should an M&A option materialize.
Domestic Petrochem Build. Given its market position and customer base, KEX is positioned to capture its share of the expected petrochem market share growth in 2017-2019.
(15%)
(10%)
(5%)
0%
5%
10%
80%
82%
84%
86%
88%
90%
92%
94%
96%
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
Utilization Y/Y Contract Pricing
24
10%
15%
20%
25%
30%
35%
40%
45%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total Capitalization Debt/Cap
Ticker KEX
Price (as of 8/24/17) 61.70$
Fully Diluted Shares Out (mil.) 54.0
52-Week High 74.50$
52-Week Low 50.80$
Market Cap (mil.) 3,329.1$
Net Debt 448.8
Enterprise Value 3,777.9$
Average Daily Volume 410,542
Short Interest (as % of Float) 14.3%
Debt/Cap 21.5%
Free Cash Flow per Share 4.11$
Dividend Yield 0.0%
Book Value per Share 45.38$
Matson, Inc. (MATX) Equal-Weight Rated
$23 Price Target
(Dollars in Millions, Except per Share)
Stock Profile Key Points
Source: Company reports, Stephens estimates and FactSet Research Systems
One Year Price / Volume Chart 5-Year NTM P/E Chart
Potential Capacity Growth In Hawaii EPS Scenario Analysis From New Competition
Increased Competition In Hawaii. A third competitor, TOTE, recently announced plans to build four new Jones Act container ships to enter the Hawaii market beginning in 2020. In addition, Pasha announced plans for 2 new ships, which could increase capacity by 41.8% in 2020.
Platform for Growth in Alaska. MATX expect sits Alaska business to be a driver of EPS and cash flow growth over the next several years. The Company guided to $0.45 of EPS accretion and ~$1.05 per share of cash flow.
New Competition. A competitor recently announced competing service in the Guam market. At the end of FY16, the competitor had ~8% market share.
% Revenue Decline
5.0% 7.5% 10.0% 12.5% 15.0%
80% $ 0.07 $ 0.11 $ 0.15 $ 0.18 $ 0.22
85% $ 0.08 $ 0.12 $ 0.16 $ 0.19 $ 0.23
90% $ 0.08 $ 0.12 $ 0.16 $ 0.21 $ 0.25
95% $ 0.09 $ 0.13 $ 0.17 $ 0.22 $ 0.26
100% $ 0.09 $ 0.14 $ 0.18 $ 0.23 $ 0.27 De
cre
me
nta
l Mar
gin
China
% Revenue Decline
2.5% 5.0% 7.5% 10.0% 12.5%
80% $ 0.07 $ 0.14 $ 0.21 $ 0.28 $ 0.35
85% $ 0.07 $ 0.15 $ 0.22 $ 0.30 $ 0.37
90% $ 0.08 $ 0.16 $ 0.24 $ 0.32 $ 0.39
95% $ 0.08 $ 0.17 $ 0.25 $ 0.33 $ 0.42
100% $ 0.09 $ 0.18 $ 0.26 $ 0.35 $ 0.44 De
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Guam
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Ticker MATX
Price (as of 8/24/17) 23.81$
Fully Diluted Shares Out (mil.) 43.1
52-Week High 43.00$
52-Week Low 21.63$
Market Cap (mil.) 1,027.4$
Net Debt 765.0
Enterprise Value 1,792.4$
Average Daily Volume 300,316
Short Interest (as % of Float) 3.2%
Debt/Cap 61.8%
Free Cash Flow per Share (0.19)$
Dividend Yield 3.4%
Book Value per Share 11.14$
# of Vessels Route TEU Capacity
6 ships Hawaii Turnaround 12,576
5 ships Hawaii/Guam/China 11,365
# of Vessels Route TEU Capacity
4 ships Hawaii Turnaround 8,400
Total TEUs 32,341
# of Vessels Operator TEU Capacity
9 MATX 25,000
4 Pasha 6,450
4 TOTE 14,400
Total TEUs 45,850
Increase In Capacity 41.8%
Current Pasha Deployment
Hawaii Capacity In 2021
Current MATX Hawaii Deployment
Estimate Comparison: Stephens vs. the Street
Source: Stephens estimates and FactSet Research Systems Note: FDX fiscal year end is 5/31 Note: Estimates reflect operating EPS for AAWW, ATSG, AAL, DAL, LUV, UAL, ECHO, FWRD, INT and XPO.
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Short Interest as a % Of Float
14.8% 14.0% 13.8% 11.1% 11.0% 7.6% 6.4% 4.5% 3.2%
XPO KEX CHRW ECHO AAWW AAL EXPD UAL LSTR
3.1% 2.5% 2.4% 2.0% 1.8% 1.5% 1.3% 1.2%
MATX INT DAL ATSG FDX FWRD UPS LUV
3Q17 Estimate FY17 Estimate FY18 Estimate
Stephens Street Diff. Stephens Street Diff. Stephens Street Diff.
Airfreight
AAWW 1.15$ 1.17$ (0.01)$ 4.90$ 4.84$ 0.05$ N/A 5.29$ N/A
ATSG 0.19$ 0.21$ (0.02)$ 0.84$ 0.87$ (0.04)$ 1.18$ 1.13$ 0.04$
EXPD 0.63$ 0.61$ 0.02$ 2.40$ 2.32$ 0.08$ 2.55$ 2.54$ 0.01$
FDX 3.20$ 3.17$ 0.03$ 13.50$ 13.57$ (0.07)$ 15.35$ 15.48$ (0.13)$
UPS 1.44$ 1.45$ (0.01)$ 5.99$ 6.01$ (0.02)$ 6.45$ 6.48$ (0.03)$
Airlines
AAL 1.63$ 1.63$ 0.00$ 5.11$ 5.10$ 0.00$ 6.15$ 5.71$ 0.45$
DAL 1.81$ 1.79$ 0.02$ 5.39$ 5.44$ (0.05)$ 6.20$ 6.07$ 0.13$
LUV 0.97$ 1.00$ (0.03)$ 3.68$ 3.79$ (0.11)$ 4.65$ 4.70$ (0.05)$
UAL 2.94$ 3.00$ (0.05)$ 7.70$ 7.78$ (0.09)$ 8.90$ 8.71$ 0.19$
Logistics
CHRW 0.84$ 0.83$ 0.02$ 3.35$ 3.28$ 0.07$ 3.65$ 3.56$ 0.09$
ECHO 0.19$ 0.20$ (0.01)$ 0.62$ 0.59$ 0.03$ 1.00$ 0.88$ 0.12$
FWRD 0.58$ 0.58$ (0.00)$ 2.32$ 2.32$ (0.00)$ 2.60$ 2.60$ (0.00)$
INT 0.62$ 0.62$ 0.00$ 2.30$ 2.28$ 0.01$ 2.95$ 2.85$ 0.10$
LSTR 0.92$ 0.92$ 0.00$ 3.58$ 3.56$ 0.03$ 4.15$ 4.02$ 0.13$
XPO 0.59$ 0.59$ 0.00$ 1.90$ 1.90$ 0.00$ 2.70$ 2.83$ (0.14)$
Maritime
KEX 0.50$ 0.49$ 0.02$ 2.00$ 1.99$ 0.01$ 2.35$ 2.60$ (0.24)$
MATX 0.63$ 0.62$ 0.01$ 1.60$ 1.68$ (0.08)$ 1.90$ 1.86$ 0.04$
Source: Stephens estimates and FactSet Research Systems
Pricing as of 8/24/17
Other Companies Mentioned
27
Amazon.com, Inc. AMZN 952.45$ American Railcar Industries, Inc. ARII 35.61$
ArcBest Corporation ARCB 25.25$ Canadian National Railway Company CNI 79.53$
Celadon Group, Inc. CGI 4.35$ Canadian Pacific Railway Limited CP 152.38$
Covenant Transportation Group, Inc. Class A CVTI 21.25$ CSX Corporation CSX 48.38$
Heartland Express, Inc. HTLD 20.55$ Dana Incorporated DAN 22.80$
J.B. Hunt Transport Services, Inc. JBHT 96.56$ Fortress Transportation & Infrasturcture FTAI 17.16$
Knight Transportation, Inc. KNX 36.75$ FreightCar America, Inc. RAIL 16.88$
Marten Transport, Ltd. MRTN 15.70$ GATX Corporation GATX 60.26$
Old Dominion Freight Line, Inc. ODFL 93.59$ Genesee & Wyoming, Inc. GWR 65.90$
Rush Enterprises, Inc. Class A RUSHA 39.37$ Greenbrier Companies, Inc. GBX 43.50$
Saia, Inc. SAIA 51.35$ Hub Group, Inc. HUBG 37.05$
Swift Transportation Company Class A SWFT 26.31$ Kansas City Southern KSU 104.58$
USA Truck, Inc. USAK 9.67$ NN, Inc. NNBR 25.30$
Wabash National Corporation WNC 20.12$ Norfolk Southern Corporation NSC 117.74$
Werner Enterprises, Inc. WERN 31.00$ Ryder System, Inc. R 73.02$
YRC Worldwide Inc. YRCW 11.56$ Stoneridge, Inc. SRI 16.01$
Trinity Industries, Inc. TRN 28.73$
Union Pacific Corporation UNP 104.57$
WABCO Holdings Inc. WBC 138.69$
Wabtec Corp. WAB 70.15$
Other Companies Mentioned:
REQUIRED DISCLOSURES The research analyst principally responsible for preparation of this presentation has received compensation that is based on the firm’s overall revenue which includes investment banking revenue. Rating Definitions: Company Stock Ratings: OVERWEIGHT (O) – The stock’s total return is expected to be greater than the total return of the company’s industry sector, on a risk-adjusted basis, over the next 12 months. EQUAL-WEIGHT (E) – The stock’s total return is expected to be equivalent to the total return of the company’s industry sector, on a risk-adjusted basis, over the next 12 months. UNDERWEIGHT (U) – The stock’s total return is expected to be less than the total return of the company’s industry sector, on a risk-adjusted basis, over the next 12 months. VOLATILE (V) – The stock’s price volatility is potentially higher than that of the company’s industry sector. The company stock ratings may reflect the analyst’s subjective assessment of risk factors that could impact the company’s business. Distribution of Stephens Inc.'s Ratings (as of 06/30/17) % Investment Banking Clients Rating % (Past 12 Months) BUY 54 28 HOLD 44 14 SELL 2 0 OTHER DISCLOSURES Certain investment programs offered by Stephens to clients sometimes engage in purchases or sales of securities that are consistent or inconsistent with Research Analyst recommendations. These programs are managed on a discretionary basis, or provide investment recommendations, by program managers in the exercise of their independent judgment and analysis. Stephens’ directors, officers and employees are allowed to participate in these programs subject to established account minimums and applicable compliance restrictions. This presentation has been prepared solely for informative purposes as of its stated date and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. Information included in the presentation was obtained from internal and external sources which we consider reliable, but we have not independently verified such information and do not guarantee that it is accurate or complete. Such information is believed to be accurate on the date of issuance of the presentation, and all expressions of opinion apply on the date of issuance of the presentation. No subsequent publication or distribution of this presentation shall mean or imply that any such information or opinion remains current at any time after the stated date of the presentation. We do not undertake to advise you of any changes in any such information or opinion. Additional risk factors as identified by the Subject Company and filed with the Securities and Exchange Commission may be found on EDGAR at www.sec.gov. Prices, yields, and availability are subject to change with the market. Nothing in this presentation is intended, or should be construed, as legal, accounting, regulatory or tax advice. Any discussion of tax attributes is provided for informational purposes only, and each investor should consult his/her/its own tax advisors regarding any and all tax implications or tax consequences of any investment in securities discussed in this presentation. From time to time, our research reports may include discussions about potential short-term trading opportunities or market movements that may or may not be consistent with Stephens’ long-term investment thesis, rating, or price target. Please note that we provide supplemental news and analysis in Quick Take blogs available to clients on our website. If applicable, when reading research on Business Development Companies, you should consider carefully the investment objectives, charges, risks, fees and expenses of the investment company before investing. The prospectus, and, if available, the summary prospectus, contain this and other information about the investment company. You can obtain a current prospectus, and, if available, a summary prospectus, by calling your financial consultant. Please read the prospectus, and, if available, the summary prospectus, carefully before investing as it contains information about the previous referenced factors and other important information. Also, please note other reports filed with the Securities and Exchange Commission by the relevant investment company at www.sec.gov. Please also note that the report may include one or more links to external or third-party websites. Stephens Inc. has not independently verified the information contained on such websites and can provide no assurance as to the reliability of such information, and there can be no assurance that any opinions expressed on such websites reflect the opinions of Stephens Inc. or its management. Additional information available upon request.
Disclosures
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