前路不明：盈利可视性运输股的首要方向

1、Credit Suisse Equity ResearchAmericas/United StatesAn Unclear Path AheadEarnings Visibility, Direction Paramount for Transport Stocks in 2019LookingforDirection:Similartomostindustrialsinvestors,wetoo,awaitforthesignal(s)totellusifthenextmovein the stocks is up or down. As we look across our univers

2、e, we have the most confidence in the trajectory of rail EPS in 19 which we expect to increase in the low double-digit range on average and the least visibility in the TLs.OwnPSR:Whilethemacroisclearlyslowingdomesticallyandgloballyandtherailsarefarfromimmunewewantto own the rails with the PSR model

3、in a slowing volume environment. One of the most important benefits of PSR is the abilitytoconvertfixedcoststovariablecostsinadownturn-whichhelpstoprotectmargins(andearningsandcashflow) in the face of volume declines by quickly removing excess equipment and restoring balance on the network.Negative

4、on TL: Spot rates remain down and even if absolute supply and demand remain tight relative to historical standards, we heard about supply creep in Q3. The fact that capacity appears to have come into the market (even if on thefringes) sosoon -intowhathadonly6monthsearlierbeendescribed asanextended s

5、tructuraltruckingcycle -may be evidence enough to tell us that the industry remains as cyclical as it has always been. Indications by several carriers thatalarger%ofeveryincrementaldollarfrompricingwasgoingtodriverpayin2018relativetohistoricaltrendsdoes little to assuage our concerns.Favorite Stocks

6、: Rails. All of them. But, we rank order as follows: CSX, CNI, UNP/CP (its a tie.), KSU, NSC.Least Favorite Stocks: GWR, EXPD,WERNJanuary 15, 2019RESEARCH ANALYSTSAllison LandryResearch Analyst+1 (212) 325-3716 HYPERLINK mailto:allison.landry allison.landrycredit HYPERLINK mailto:allison.landry - HY

7、PERLINK mailto:allison.landry Samantha YellenResearch Analyst+1 (212) 325-7451 HYPERLINK mailto:samantha.yellen samantha.yellencredit HYPERLINK mailto:samantha.yellen - HYPERLINK mailto:samantha.yellen Brian WrightResearch Analyst+1 (212) 325-1855 HYPERLINK mailto:brian.wright brian.wrightcredit HYP

8、ERLINK mailto:brian.wright - HYPERLINK mailto:brian.wright DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGALENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covere

9、d 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 decision.Investment SummaryMostConfidentinRailEPS

10、in2019RelativetoOtherSub-Sectors: As we look across our universe, we have the most visibility and confidence in rail earnings in 2019. While the macro is clearly slowing domestically and globally and the rails are far from immune we want to own the rails with the PSR model in a slowing volume enviro

11、nment (see our HYPERLINK /s/V7ewmt4AF-Z8OM 2019 HYPERLINK /s/V7ewmt4AF-Z8OM Rail HYPERLINK /s/V7ewmt4AF-Z8OM Outlook). One of the most important benefits of PSR istheabilitytoconvertfixedcoststovariablecostsinadownturn-which helps to protect margins (and earnings and cash flow) in the face of volume

12、 declines by quickly removing excess equipment and restoring balance on the network. We like all of the rails, but our rank order preference is as follows: CSX, CNI, UNP/CP (its a tie.), KSU, NSC.Top Pick CSX: While the CN-like top line leverage part of our thesis may take a little longer than we in

13、itially thought in light of the current macro, we now think that investors are temporarily overlooking the fact that CSX is now a PSR network. And just like weve seen with CN and CP in past downturns, CSXs now lower cost structure and lower asset/resourceintensityshouldprovideadegreeofrelativeprotec

14、tionto margins. This should become very apparent relative to NSC, which has not committed to PSR. Despite this, the prevailing sentiment seems to favorrailsthathavemoreperceivedroomformarginimprovement.Inour view, this creates a compelling opportunity in the stock.The Gold Standard of Rail Efficienc

15、y; Upgrading CN to OP: In a separate report this morning, we upgraded Canadian National to Outperform from Neutral. It is now clear that 2018 was merely ablemish on CNs otherwise pristine scorecard relative to its rail peers, with recent networkinvestmentsaddingsufficientcapacityforthecompanytohandl

16、e more traffic and grow at low incremental cost. To this end, (1) RTM growth has inflected; (2) network fluidity is close to being fully restored; and (3) the O.R. is set up for meaningful improvement in 2019. We see mid-teens EPS growth in 2019 - with close to 200bps of margin expansion that we thi

17、nk is not only achievable, but potentially conservative. Considering these factors alongside reasonable valuation andrelativedefensiveness,werecommendthatinvestorsownthestock.GWR Top Underperform: We see downside risk to shares in 2019, drivenby(1)short-to-mid-termoperatingdisruptionsrelatedtotheCla

18、ssI rollout of PSR (which does not necessarily mean service issues at the Class Is); (2) weaker operating leverage due to slowing N.A. volumes; (3) chronic underperformance in the U.K. franchise; (4) a lack of M&A catalysts; and (5) and a premium valuation that is now unwarranted. The stock is prici

19、ng in 2019 EPS that is 5% above the Street.WereNegativeonTL:Conversely,wehavelittlevisibilityintotruckload earnings-cyclicalorotherwise.Themarketdoesntappeartoeither-the stocks are pricing in 2019 EPS that is 8% lower than the consensus on average.Spotratesremaindownandevenifabsolutesupplyanddemand

20、remaintightrelativetohistoricalstandards,weheardaboutsupplycreep in Q3. The fact that capacity appears to have come into the market (even if on the fringes) so soon - into what had only 6 months earlier been described as an extended structural trucking cycle - may be evidence enough to tell us that

21、the industry remains as cyclical as it has always been. Indications by several carriers that a larger % of every incremental dollar from pricing was going to driver pay in 2018 relative to historical trends does little to assuage our concerns. We cut our estimates for the groupby4%onaverage;butnotev

22、aluationsarealreadyrelativelylow.WERN Underperforms KNX During Freight Contractions: We lowered our 19-20 EPS estimates by 3% on average, and now are looking for flat y/y earnings growth in 2019. This compares to the consensus expectation for 9% EPS growth. We further point out that WERN has histori

23、cally underperformed its peer KNX during freight contractions. But, valuation looks cheap with market embedded expectations for 19 earnings that are 5% lower than the consensus.Relatively Defensive, Non-Asset Based Names Screen as Expensive: Not surprisingly, our market implied valuation analysis su

24、ggests that expectations for CHRW, EXPD, ECHO and LSTR are lofty relatively to their more asset-intensive peers. While we think it may be premature to completely rotate out of asset-intensity, this is possibly a trade for 2H19 to the extent that we see a real cyclical downdraft.BearishBearishBullish

25、Subsector RankingsBullishSectorChange in ViewCommentaryRailsHigher convictionhave the most visibility to rail earnings in 2019.PSRnetworksshouldprovideadegreeofresiliencyto margins, EPS and FCF in a downturn.early to get negative on the group.LogisticsIncrementally PositiveThe slowing macro backdrop

26、 signals that investors maywantto position more defensivelyWhileitmaybeprematuretocompletelyrotateoutofasset- this is possibly a trade for 2H19.Airfreight & GroundUnchanged/ SlightlyNegativeTheslowdowninglobaltradewhetherpolicydrivenortruly cyclical cannot be ignored.Capex remains a cross to bear in

27、 the e-Commerce drivenworld.TruckingIncrementally MoreLack of visibility into TL earnings in 2019. cut estimates for the group by 3% on average in 19-20.In spite of perceived structural capacity constraints, supply creep may tell us that the industry is as cyclical as itsalways been.Incremental Chan

28、ges in Select StockViewsStockRatingUpdated ViewWhy?OutperformUpgraded from NeutralUpgraded to Outperform.Own PSR.CN is the gold standard.Potential upside to 2019 numbers.Stock relatively defensive.ODFLOutperformRemain PositiveIncremental margins could see another peak-like as OD laps headcount addit

29、ions and the resulting lost productivity (mainly in the first 3 quarters of 18). raised our forecasts by 1% on avg., due to higher yields owing to the positive impact of lower weight/shipmentNeutralIncrementally PositiveRelative to FDX.But, we still think 2019 numbers are too high.Werealsoworriedabo

30、utcostoverrunstoprotectpeak service levels during Q4.UnderperformRemain NegativePSR implementation to disrupt network,Slowing N.A. volume to crimp operating leverage.Lack of M&A catalyst due to increased competitionand stepped up share buyback.Premium valuation vs. Class not warranted.NeutralIncreme

31、ntally Negativelowered estimates by 3% on average, and now arelooking for flat y/y EPS growth in 2019.The consensus is currently expecting 9% earnings growth.WERN has historically underperformed KNX duringfreight contractions.But, valuation looks cheap.Top PicksCompanyInvestment CaseCSXLowercoststru

32、ctureandlowerasset/resourceintensityshouldprovideadegreeofrelative protection should we enter a downturn especially when compared to NS.Currentsentimentappearstofavorsrailswithmoreperceivedroomformarginimprovement, which creates a compelling opportunity for the stock, in our Intermodal network redes

33、ign supports further top line and O.R. improvement opportunities. Remember, Jim Foote helped to pioneer Intermodal Excellence (IMX) and CarloadExcellence (CX) at CN.CNICNisregardedasthegoldstandardofoperationalandassetefficiencywithintherailroadindustryGiven its industry leading O.R., best in class

34、ROIC, and steady CN is the most defensive nameamongtherails.Thisisfurthersupportedbyitsleverageratio,whichisthelowestamongthe rail group.RTM growth has inflected, and we expect volumes to continue accelerating in 19.Network fluidity is close to being fully restored, which supports higher incremental

35、margins.UNPImplementation of PSR at UNP creates room for meaningful O.R. improvement, and webelieve there is upside to the 60% O.R. target by 2020.Recent hiring provide further confidence in the ability to implement PSR successfully.Pricing may accelerate as service is deteriorating at BNSF while im

36、proving at CPSimilar to CN, CP is a fully-implemented PSR rail which should support lower costs and higher asset efficiency than its peers in the event of a downturn.CBRopportunityremainsattractivewithvolumesapproaching14peaklevels.Importantly,CP has been more cautious this time around by signing mu

37、lti-year contracts with volume commitments.Focusonbackhaulopportunitiesandexpandingmarketreach(throughcollaborationwithother rails) has resulted in attractive volume opportunities.Market embedded EPS is relatively low and suggests stock is somewhat cheap vs. its peers.Stocks to AvoidCompanyInvestmen

38、t CaseGWRGWRwilllikelyexperiencepotentiallymeaningfulshort-to-mid-termoperatingdisruptionsrelatedto the Class I rollout of PSR.Decelerating North American volumes will likely crimp operating leverage.The U.K. business will be a “show me” story given its chronic underperformance.Recently stepped up s

39、hare buyback program signals a lack of M&A opportunities on thehorizon.PremiumvaluationtoClassIpeersnolongerwarranted,inourandmarketimpliedanalysis suggests the stock is relatively expensive.WERNhave lowered our 19-20 EPS estimates by 3% on average, and now look for flat y/y earnings growth in 19. M

40、eanwhile, the Street is dialing in 9% EPS growth.Deceleration in spot rates signals less pricing power during the bid season in 1H19.Driver wages likely to remain elevated, leading to pressure on O.R.WERN historically underperforms KNX during periods of freight contraction.However,thevaluationisrela

41、tivelycheapwithmarketimpliedexpectationsfor19EPSthatare 5% below the consensus.EXPDAirfreightseemstohavepeakedasinventoryrestockinghasessentiallybeencompleted,and global demand drivers have been softening.EXPD is not immune to the implications of trade wars. It has a variable cost model, but lower g

42、ross revenue means lower EBIT dollars.Oceanratevolatilitywilllikelycontinue,andEXPDmaynotbeabletopass onhigherratesto customers leading to pressure on net revenue margins.A pull forward in inventory related to tariffs may lead to seasonally lower volumes in1Q19.Market embedded EPS suggests the stock

43、 is expensive vs. its peers.Freight Growth Decelerating After Gangbusters 18CassFreightShipmentIndex(3-moM.A.;y/y%change)CassFreightShipmenty/y%change20%15%10%5%0%-5%-10%-15%-20%-25%14%Were on the other side the freight cycle peakWere on the other side the freight cycle peakAnd the comps only get to

44、ugher from here.10%8%6%4%2%Jan-08Oct-08Jul-09Apr-10Jan-11Oct-11Jul-12Apr-13Jan-14Oct-14Jul-15Apr-16Jan-17Oct-17Jul-18Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-180%Jan-08Oct-08Jul-09Apr-10Jan-11Oct-11Jul-12Apr-13Jan-14Oct-14Jul-15Apr-16Jan-17Oct-17Jul-18Jan-17Mar-17May-17J

45、ul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Source: Cass Information SystemsSpot Rates Decelerating;TL PricingKey Debate Into 2019ELDELDImplementationHurricane impact30%20%10%0%-10%Jan-15May-15Sep-15Jan-16May-16Sep-16Jan-17May-17Sep-17Jan-18May-18Sep-18-20%Jan-15May-15Sep-15Jan-16May-16Sep-

46、16Jan-17May-17Sep-17Jan-18May-18Sep-18Source: T via BloombergRail Industry VolumesDeceleratingNorth America Industry Rail Volumes (Y/Y % Change)8.0%7.0%Year-over-Year (% Change)6.0%Year-over-Year (% Change)5.0%4.0%3.0%2.0%1.0%0.0%1Q172Q173Q174Q171Q182Q183Q184Q18CN Upgrade: Re-Acceleration inVolumesC

47、N Quarterly RTMs (Y/Y% Change)CN Weekly RTM Growth (Y/Y %Change)25%20%15%10%5%0%1Q151Q1516%14%12%10%8%6%4%2%WeekWeek27Week29Week31Week33Week35Week37Week39Week41Week43Week45Week47Week49Week513Q151Q163Q161Q173Q171Q183Q18CNRevenueGrowthvs.ClassIPeers3Q151Q163Q161Q173Q171Q183Q18(Index = 100 at 2007)1601

48、40120100802008200920102011201220132014602008200920102011201220132014CN vs. Industry Average Carloads & RTM Growth(Index = 100 at 1Q09)150140130120110100901Q091Q101Q111Q121Q131Q141Q151Q161Q171Q18801Q091Q101Q111Q121Q131Q141Q151Q161Q171Q18201520162017Class I avg. RTMs (ex-CN & BNSF) CNI RTMs20152016201

49、7CNIClass Is (ex-CN) Class I avg. carloads (ex-CN & BNSF) CNI CarloadsCN Upgrade: Bull Case Implies 20% EPS GrowthBase Case - CS ModelBull Case - CS ModelBase Case - CS ModelBull Case - CS ModelRevenue BridgeRevenue Bridge$ (millions)y/y chg.$ (millions)y/y chg.2018 Revenues$14,2562018 Revenues$14,2

50、56Volume$4523.2%Volume$7135.0%Price$4993.5%Price$4993.5%FX$2251.6%FX$2251.6%Fuel surcharge($75)-0.5%Fuel surcharge($75)-0.5%Mix$810.6% Mix$2852.0%Chg. in Revenues$1,1818.3%Chg. in Revenues$1,64611.5%Implied RTM Growth7.2%Implied RTM Growth10.5%2019 Revenues$15,4372019 Revenues$15,902EBIT BridgeEBIT

51、Bridge$ (millions)O.R.$ (millions)O.R.2018 EBIT$5,53661.2%2018 EBIT$5,53661.2%Base incremental margins (35%)$413Base incremental margins (35%)$576Productivity$150Productivity$200Prior YearCongestion Costs$150 Prior YearCongestion Costs$200Chg. in EBIT$713-1.7%Chg. in EBIT$976-2.1%2019 EBIT$6,24959.5

52、%2019 EBIT$6,51259.0%Incremental Margin60%Incremental Margin59%2019 EPS$6.292019 EPS$6.57EPS Growth (y/y %)15%EPS Growth (y/y %)20%CN Upgrade: Bear Case Implies 5% EPS GrowthBase Case - CS ModelBear Case - CS ModelBase Case - CS ModelBear Case - CS ModelRevenue BridgeRevenue Bridge$ (millions)y/y ch

53、g.$ (millions)y/y chg.2018 Revenues$14,2562018 Revenues$14,256Volume$4523.2%Volume$00.0%Price$4993.5%Price$3562.5%FX$2251.6%FX$2251.6%Fuel surcharge($75)-0.5%Fuel surcharge($75)-0.5%Mix$810.6% Mix($143)-1.0%Chg. in Revenues$1,1818.3%Chg. in Revenues$3632.5%Implied RTM Growth7.2%Implied RTM Growth1.5

54、%2019 Revenues$15,4372019 Revenues$14,619EBIT BridgeEBIT Bridge$ (millions)O.R.$ (millions)O.R.2018 EBIT$5,53661.2%2018 EBIT$5,53661.2%Base incremental margins (35%)$413Base incremental margins (35%)$91Productivity$150Productivity$50Prior YearCongestion Costs$150 Prior YearCongestion Costs$75Chg. in

55、 EBIT$713-1.7%Chg. in EBIT$216-0.5%2019 EBIT$6,24959.5%2019 EBIT$5,75260.7%Incremental Margin60%Incremental Margin59%2019 EPS$6.292019 EPS$5.78EPS Growth (y/y %)15%EPS Growth (y/y %)5%CN Upgrade: Most Defensive AmongRailsNSCCSXBNSFKSUUNPCPCNIBest-In-ClassNSCCSXBNSFKSUUNPCPCNI72%68%64%60%56%52%16%14%

56、12%10%2011201220132014201520162017CNIClass Is (ex-CN & KSU)LowestLeverageProfileCNRelativelyDefensivevs.ClassIPeersCNKSUCNKSUNSCCSXUNPCPLTM Total Debt / Adj. EBITDA2.5x2.3x2.1x1.9xStock Index vs.Stock Index vs.S&P20%N.A. Volume ChangeY/YN.A. Volume ChangeY/Y0%1Q071Q081Q071Q081Q091Q101Q111Q121Q131Q14

57、1Q151Q161Q171Q18N.A. Rail Volumes Y/Y Rail Index vs. S&PCN vs. S&PCN Upgrade: Fluidity Restoration Supports MarginsCNTrainSpeed(Y/Y%Change)CNTerminalDwell(Y/Y%Change)15%10%5%0%-5%1Q161Q1650%Higher is betterLower is better40%Higher is betterLower is better30%20%10%0%-10%4Q181Q162Q163Q164Q161Q172Q173Q

58、174Q171Q182Q183Q184Q18-20%4Q181Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q182Q163Q164Q161Q172Q173Q174Q171Q182Q183Q18CNCarsOnline(Y/Y%Change)CNServiceMetrics(Y/Y%Change)2Q163Q164Q161Q172Q173Q174Q171Q182Q183Q18Lower is betterVelocityDwellLower is betterVelocityDwellCars Online1Q1610.3%-14.4%-12.5%2Q

59、165.1%-6.8%-9.4%3Q161.9%-5.0%-4.7%4Q16-3.1%1.2%1.5%1Q17-6.5%8.0%8.9%2Q17-5.2%8.0%13.7%3Q17-6.6%18.5%14.5%4Q17-10.2%26.6%14.2%1Q18-15.2%38.6%18.3%2Q18-13.2%17.9%13.7%3Q18-12.3%5.6%9.6%4Q18-4.7%-5.5%3.6%15%10%5%0%-5%-10%1Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q18-15%1Q162Q163Q164Q161Q172Q173Q174Q

60、171Q182Q183Q184Q18CN Upgrade: HOLT AnalysisReturns on capital (CFROI) - LFY7.5%7.4%7.5%7.4%7.0%6.0%5.7%4.9%6%4%2%0%CNICPUNPKSUCSXNSCDriversofCFROI:marginsandassetefficiency-LFYm edian gross cashBubble size and labels represent LFY CFROI0.20 xCSX: 5.7%flow m argins: 40%UNP: CNI: 7.5%m edian asset eff