Morgan Stanley Downgrades A Fleet Of Freight Stocks

Freight stocks have had a decent run over the past year, but one analyst said Monday the train may soon be going off the tracks for freight stocks.

The Analyst

Morgan Stanley analyst Ravi Shanker downgraded the following stocks:

• Union Pacific Corporation (NYSE: UNP) from Equal-Weight to Underweight, price target from $141 to $134.
• Genesee & Wyoming Inc (NYSE: GWR) from Equal-Weight to Underweight, price target from $81 to $75.
• Old Dominion Freight Line (NYSE: ODFL) from Overweight to Equal-Weight, price target from $160 to $148.

The Thesis

Morgan Stanley lowered its price targets and earnings estimates for dozens of other rail, global logistics, parcel, truckload and less-than-truckload freight stocks.

According to Shanker, consensus expectations for 2019 are too high, and many of the stocks in the freight group are already overvalued.

“Instead, we are concerned that 2019 could be similar to 2015-16, when the transportation complex went through a freight recession even as the overall economy held up,” Shanker wrote in the note.

Shanker lowered his 2019 EPS estimates for the group by an average of about 2 percent and is now about 5 percent below consensus.

While he said truckload stocks like Knight-Swift Transportation Holdings Inc (NYSE: KNX), US Xpress Enterprises Inc (NYSE: USX) and Schneider National Inc (NYSE: SNDR) are currently pricing in too much 2019 earnings risk, he said rail stocks are pricing in too little based on their premium valuations.

Price Action

Here’s how the three downgraded stocks reacted to the news:

• Old Dominion fell about 1 percent.
• Genesee & Wyoming was down 1.6 percent.
• Union Pacific was down 1 percent.

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