Goldman Sachs equities analysts believe that weakness in the industrial sector of the U.S. economy will persist through the first quarter of 2020 before positively inflecting in the second quarter, leading them to cut earnings estimates for the transportation companies in their coverage universe.
Analyst Jordan Alliger wrote last week in an investor note that “it is just tough to ignore ongoing softness in weekly rail carloads (economically sensitive carloads -3.3% in 3Q – worsening from +0.9% in 2Q), taken together with two consecutive months of ISM below 50.”
Alliger’s team cut 2020 earnings per share (EPS) estimates across a broad swath of transports – CSX (NASDAQ: CSX), Norfolk Southern (NYSE: NSC), Union Pacific (NYSE: UNP), Canadian National (TSX: CNR.TO), Canadian Pacific (TSX: CP.TO), FedEx (NYSE: FDX), XPO Logistics (NYSE: XPO), J.B. Hunt (NASDAQ: JBHT), C.H. Robinson (NASDAQ: CHRW) and Expeditors International (NASDAQ: EXPD).
Prior to the note, Goldman’s models assumed some positive freight growth in the first half of 2020. The estimate cuts reflect Goldman’s conviction that the current slowdown will follow the pattern of previous industrial recessions, which typically last five to seven months, as measured by ISM data; that means that industrial activity may not begin improving until sometime in the second quarter of 2020.
Goldman warned that the current estimate cuts only signify direction, and may not be the last cuts, depending on what companies can do to reduce costs and whether volumes do in fact snap back.
“Should we see the consumer slow sharply, or peak retail season disappoint, it would call into question our newly revised down EPS estimates for 2020 – in other words the potential for much deeper EPS cuts would arise,” Alliger wrote.
Goldman cut 2020 EPS by 2-4% across the railroad sector, although Norfolk Southern, on Goldman’s conviction list, and Union Pacific still maintained their ‘Buy’ ratings. The Canadian rails and CSX have mostly completed the cost-reduction measures in Precision Scheduled Railroading and are more vulnerable to weaker volumes. Canadian National was hit by lower crude-by-rail volumes, a delayed grain harvest, a weak lumber outlook, and a reduction in exported American coal. Canadian Pacific was affected by weak potash and the delayed grain harvest, while CSX is experiencing “near-term weakness in intermodal and coal.”
J.B. Hunt, Alliger wrote, is set up to benefit from a tightening of truck capacity – due to new truck orders running below replacement levels – and efficiency improvements in the railroads in the second half of the year, although earnings should be softer in the first half of the year. Goldman left Hunt’s 12-month price target unchanged at $116, representing just a 5.9% upside from the company’s current share price of $109.52.
Coming off a recent UPS management visit, Goldman left estimates and its ‘Buy’ rating for the parcel integrator unchanged; the bank’s price target for UPS is still $136, almost exactly where the stock opened on Monday, October 14.
“We still expect UPS to benefit meaningfully for at least the next three quarters from greater Next Day Air volume tied to big box retailer penetration, as well as incremental Amazon business related to FDX no longer servicing this customer,” Alliger wrote. “This outsized domestic volume growth should help push down cost per shipment and improve operating margin.”
FedEx stock has been beat up due to a string of earnings misses followed by lowered guidance; Goldman’s price target at $178 represents a 21% premium to the current price of the stock. Alliger mentioned a range of factors from continued integration expense around the TNT acquisition to general industrial weakness could delay margin improvement until fiscal year 2021, but that FedEx’s high operating leverage is well-positioned to make the most of any recovery in volumes.
The non-asset and asset-light intermediaries in Goldman’s coverage – CHRW, XPO and EXPD – were all dinged on expectations for soft volumes, which will negatively offset margin expansion on lower capacity costs (whether truckload, air or container). Expeditors was the only transport tagged with a ‘Sell’ rating.
“We make only slight adjustments to EXPD earnings outlook as the non-asset intensive model mitigates the ongoing ocean and air forwarding volumes,” Alliger wrote. “That said, the shares still trade at a logistics group premium at a time when China-U.S. trade is a major concern.”
Expeditors’ price to earnings ratio was about 19x, but still below its five-year average of 21.1x. Although the stock is currently trading at $74, Goldman lowered its price target to $68 from $70.
“Taken together (an industrial, not consumer slowdown, easy YOY comps in 2020, and multiple compression tied to expected EPS re-set), we tie in share price performance during prior “freight recessions” and note: share prices tend to react favorably around the mid/back half of a contraction,” Alliger concluded.
Noble1
You wouldn’t believe the BS being spewed on the web attempting to explain the sharp rise in Bitcoin . All weekend long I’ve been looking through the nonsense being reported which attempts to explain several “fundamental” reasons for the move .
How absurd !
It’s a technical event , PERIOD !
BB’s simply covered their short position at an important PP and then reversed and went long . The thrust out of the “controlled” low volatility tight bound range on the 23rd(after causing a climax / large and swift panic sell off into the pp ) & 24th ) which they created is what caught many by surprise and lead them to panic causing the not so savvy to cover frantically at all costs and fast, drawing further speculator attention to hop on the momentum . The savvy typically cover their short position without drawing to much attention and keep the price tight and range bound and slowly reverse their position from short to long . Eventually they push price to break out of the range , volatility increases squeezing unsavvy shorts to cover and that’s what causes price to climb to the moon Alice ! Then price pulls back as BB’s and speculators cash in some gains , ad nauseam .
In my humble opinion …………
Noble1
Satoshi(clever) Karamoto(origin) of Bitcoin(cryptocurrency) was suppose to be a decentralized cryptocurrency monetary revolution which Banks supposedly couldn’t manipulate like fiat currency . However , it’s value fluctuates through Bitcoin FUTURES(market manipulation) ! The “Big Boys” are controlling it ! They can snap its value like a twig and pump it like a balloon at will . To purchase Bitcoins you need some sort of medium of exchange which is typically a fiat currency . And when you sell Bitcoins you will exchange them for some sort of medium of exchange which is typically fiat currency . Therefore trading Bitcoins is no different than trading currency pairs/exchange rates . One currency’s rate against another . Therefore Bitcoin value is actually extremely vulnerable to market volatility and fluctuates in accordance to market psychology .
For simplicity sake let’s assume Bitcoin is trading at a $5 value and you purchased it a that price . The BB’s decide that they are going to whack it . So they short Bitcoin Futures and Bitcoin value decreases 80% . The Bitcoin that you purchased at a value of $5 is now worth $1 OUCH ! Now you’ll need 4 more Bitcoins to arrive at a $5 value rather than just 1 to purchase a $5 item . That’s one heck of a devaluation . Or viewed from a different angle , HYPERINFLATION GALORE . If fiat currency value were to fluctuate at a similar proportion , you would have either a riot in the street and or an economic depression .
Bitcoin “value” is speculative at best , thus extremely risky even though its decentralized .
The fact that it’s being traded on market exchanges gives the “market” savvy an edge . The savvy can time their entries and exits based on methodologies such as pattern recognition which identifies extremes in investor psychology within market trends .
Realistically speaking , the one’s who blindly bought a Bitcoin at a value of $20k based on irrational exuberance must be freaking out of their minds , and even more so if they blindly sold it at a value of $4k due to fear .
The fact that Bitcoin emerged in 2009 , and value peaked in late 2017(edge of 2018) and troughed in late 2018(edge of 2019) , does that not bring you to realize that it appears to behave like ,and correlates with, “something” else that the “Big Boys” also control ?
The fact that Goldman Sachs(a Big Boy) forecasts market trends on Bitcoin and suggests price targets confirms what I have alluded to concerning BB’s(Big Boys) & Bitcoin above .
Why am I writing about this here and now ?
I am writing about this here due to the most recent article on Freightwaves mentioning Goldman Sachs . Another reason for which I am mentioning this now is due to having noticed on the 24th of October precisely ,BTC/USD was trading on an intra-day time frame within a low volatility range at an important pivot point suggesting a high probability that BTC/USD would break out upwards along with a sharp increase in volatility .
And sure enough that’s precisely what occurred .
Just be extremely vigilant , especially in regards to following “Big Boy” recommendations and or forecasts . BB’s just like major motor carriers, are in the game(business) to serve their own interests , not yours !
In my humble opinion ……….
Noble1
Let’s back tract GS’s call on Norfolk Southern in July 10 2019 .
Just for fun .
Quote:
“Goldman Sachs Initiates Coverage On Norfolk Southern with Buy Rating, Announces $237 Price Target; Adds To Conviction Buy List”
You can google it .
Ok let’s give that a look and see what occurred since . On July 10 2019 Norfolk Southern’s share price traded between a low of approximately $197 and a high of approximately $200.88 per share and closed at approximately $198.21 per share .
From that point for the next 4 trading days up to July 16 2019 the Norfolk Southern share price increased to an approximate high of $208.45 .
From July 16 2019 Norfolk Southern’s share price took a dive down to $166.57 which was printed on October 8 2019 ! That’s just shy from a 16% loss based on GS’s buy rating at the price NSC was trading at on July 10 2019 ! We’re talking about Goldman Sachs here , not some wannabe .
Here are a few questions that come to mind :
-Did GS’s $237 price target call have an influence on Norfolk Southern’s share price rising on the next four trading days until July 16 ?
Is one of the main questions one should reflect upon . I drew my own conclusion .
-Another question is , can one follow a BANK’S call blindly ?
I drew my own conclusion .
-Another question without knowing is , did GS have a short position on NSC and or engage in shorting NSC before and after their buy rating ?
I don’t know but I’m curious .
In my humble opinion ………………..
Noble1
Question :
Does Goldman Sachs trade equities/derivatives related to and or in the industry(s) upon which they are “rating/covering” and or expressing their public opinion upon ?
If so , then they appear to be in a “utilitates ex conflictu”(in Latin)
In my humble opinion ……………