October 9, 2018 / 12:16 PM / 2 months ago

BUZZ-US transport: MS prefers "untouchable" truckers over "unstoppable" railroads

** Morgan Stanley still prefers “untouchables” truckload companies due to relatively lower valuations and stays cautious on “unstoppable” railroads on expectations of mixed Q3

** MS notes about 1/4th of its 23-company coverage universe is at trough low-teen PE valuations, with most of them truckers, while the rest are trading above high-teen or even at 20x levels

** On railroads, MS expects same “investor thirst” for cyclical defensives, domestic macro exposure and idiosyncratic stories to continue, unless “valuation fatigue” sets in

** Canadian Pacific has already reported a profit beat; MS expects CSX Corp to also beat, and says estimates on Union Pacific may have been lowered a bit too much after its recent operations overhaul plan

** But MS expects CN Rail, Kansas City Southern and Norfolk Southern to miss on weak volumes

** MS expects a strong Q3 for truckload companies, but says focus will be on Q4/peak season and 2019 outlooks to set the future trajectory for the stocks

** Sees Werner Enterprises, Schneider National , Heartland Express, Old Dominion Freight Line , ArcBest beating estimates

** Expects a miss at US Xpress’s, saying the Street is “mismodelling” Q3, and forecasts an in-line quarter for Knight-Swift before a strong pick up Q4 onwards

** The Dow Jones Transport index is up 5.6 pct YTD only due to a ~10 pct jump from July-Sept; the index fell from Jan-June and is down since Q4 started in Oct

** DJT’s move has diverged with Dow Jones Industrial Average , which can signal growing market instability (Reporting by Savio D’Souza)

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