Norfolk Southern (NSC) The Favorite Large-cap Railroad Stock For Stfiel, Nicolaus And Co. Analyst; Disappointing 2010 Q4 Creates Buying Opportunity For Investors
March 3, 2011 - The Wall Street Transcript has just published Transportation & Logistics Report offering a timely review of the Trucking sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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John Larkin, CFA, joined the Stifel, Nicolaus & Co., Inc., research team in connection with Stifel's acquisition of Legg Mason's Capital Markets Group in December 2005. Mr. Larkin was recognized as an "All-Star Analyst" in both 2003 and 2004 and was rated as the number one stock picker in the 2003 Forbes.com/StarMine survey in both the road and rail, and the airfreight and logistics categories. He placed third in the 2004 Forbes.com/StarMine stock picking survey in the road and rail category. From 1987 to 1998, Mr. Larkin was a key member of BT Alex.Brown's transportation team. During that period, Mr. Larkin was recognized twice by The Wall Street Journal and twice by Institutional Investor as an "All-Star Analyst." Mr. Larkin earned a B.S. and an M.S. in civil engineering from the University of Vermont and the University of Texas, respectively, and an MBA from Harvard University.
TWST: Who do you like in your coverage right now? What makes those companies stand out over their competitors?
Mr. Larkin: If we look at our list of which companies have the most upside potential right at the moment, our favorite railroad and favorite large-cap name is Norfolk Southern (NSC), which had a slightly disappointing fourth quarter, and I believe that has created a bit of buying opportunity that makes it quite intriguing. So we like Norfolk Southern, the big Eastern railroad, which should have a very good 2011, especially when it comes to handling export metallurgical coal. Export metallurgical coal is in big demand now that a lot of the mines in Australia are flooded. Our best mid-cap idea is Swift (SWFT), which is primarily a truckload carrier that just went public for the second time in December 2010. And we were just allowed to roll out coverage of the name on January 26, 2011.
Swift is really the biggest pure truckload carrier in United States. As new driver safety regulations are implemented, the company is in a very strong position to achieve some pretty nice pricing and to really see margins expand going forward.If I had to pick a small-cap name, I might pick Roadrunner (RRTS), which is a multiservice transportation company that is primarily an asset-light LTL carrier. They are extremely well positioned in longer-haul LTL markets, where the biggest competitor, YRC Worldwide (YRCW), will either survive by taking price up or will fail. If YRC fails, I think Roadrunner is well positioned to capture a lot of their business. If YRC continues to operate because they've taken price up, then Roadrunner will take their prices up too and that will be good for Roadrunner.
TWST: Why FedEx over UPS?
Mr. Larkin: Because it's more or less a nonunion company, number one. Number two, because FedEx has more exposure to Asia. Number three, because it has a product called SmartPost, which is what we used to call "zone skipping." With SmartPost, instead of giving the package to FedEx or UPS at the distribution point, they pick it up at the distribution point and then they sort it by what they call DDU, and your local postman delivers the package, which is the most expensive component of the move. But he's going to your house every day anyway, so the more he can carry and then drop off, the more efficient the process is. So if you buy something from L.L. Bean or Amazon.com (AMZN), if you need it by tomorrow you can pay for it yourself and get it tomorrow by air. If you want by the end of the week, you can select FedEx Ground or UPS Ground. If you really don't care whether it gets there in five to 10 days, then you can check the free option, and the free option is often SmartPost.
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