Expected Price Gains in Transportation Stocks (CSX, NSC, UNP, CP, DSX, DRYS, EXM, FRO, JBHT, LSTR)

Transportation stocks get a lot more attention as economic bellwethers than they do as market participants. Railroads, ships, and trucks are not particularly glamorous, and the industries are so entrenched that they most resemble utility stocks.

The companies included in today’s overview are CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC), Union Pacific Corp. (NYSE: UNP), Canadian Pacific Railway Ltd. (NYSE: CP), Diana Shipping Inc. (NYSE: DSX), DryShips, Inc. (NASDAQ: DRYS), Excel Maritime Carriers Ltd. (NYSE: EXM), Frontline Ltd. (NYSE: FRO), JB Hunt Transport Services Inc. (NASDAQ: JBHT), and LandStar System Inc. (NASDAQ: LSTR).

Of the ten stocks we’re looking at today, only one trades more than 10 million shares a day and most of the others trade less than 3 million.  On the surface, it would seem that all these stocks would more or less trade in parallel. In practice, though, railroads and trucking companies are faring far better than sea-borne shippers. Railroads are hauling more coal, and trucking companies are having trouble meeting demand for their services. Shippers overbuilt their fleets, and the resulting collapse in day rates has been punishing for their top and bottom lines.

Cargo traffic is closely watched at this time of year as a predictor of holiday retail sales. Typically, ocean container shipping headed to the US tips the coming strength of retail sales. This year, container shipments have been somewhat lower, and this month’s totals will really tell the tale. Rail and truck traffic has been strong though, although the shortage of available trucks is diverting more container (intermodal) traffic to the railroads.

All data from Yahoo! Finance, and share prices were collected shortly before noon today.

CSX Corp. (NYSE: CSX) has a median target price of $27.00 from 24 brokers. Shares are trading today at $22.66, for an implied gain of $4.34, or 19%. CSX’s forward P/E is 11.73 and the company pays a dividend yield of 2.3%. The stock’s 52-week trading range is $17.69-$27.06, and at today’s price that’s about 28% above its 52-week low, posted earlier this morning, and 16% below the 52-week high. CSX met analysts’ expectations when it reported third quarter earnings about 10 days ago. The company noted a 15% jump in intermodal freight revenue, although volume was essentially unchanged from the same period a year ago. CSX said at the time that it does not expect significant growth in the US, but neither does it predict a double-dip recession.

Norfolk Southern Corp. (NYSE: NSC) has a median target price of $82.00 from 23 brokers. Shares are trading today at $74.74, for an implied gain of $7.26, or 10%. Norfolk Southern’s forward P/E is 12.91 and the company pays a dividend yield of 2.5%. The stock’s 52-week trading range is $57.57-$78.40, and at today’s price that’s about 30% above its 52-week low, posted earlier this morning, and 5% below the 52-week high. Norfolk Southern hauled 23% more coal in the third quarter than it did a year ago, and its intermodal traffic volume increased by 13%. Like CSX, the company expects modest economic growth in the US going forward. The company’s implied stock price gain is about half that of CSX, but with both coal and intermodal traffic up and growing, Norfolk Southern is more likely to bust through its current target price than the other railroads we’ve looked at today.

Union Pacific Corp. (NYSE: UNP) has a median target price of $110.00 from 25 brokers. Shares are trading today at $102.35, for an implied gain of $7.65, or 7.5%. Union Pacific’s forward P/E is 13.15 and the company pays a dividend yield of 2%. The stock’s 52-week trading range is $77.73-$107.89, and at today’s price that’s about 32% above its 52-week low, posted earlier this morning, and 5% below the 52-week high. Union Pacific posted third quarter earnings a week ago, and its international intermodal shipments were down -12% year-over-year. That implies that retailers are buying less in anticipation of a slower holiday shopping season.

Canadian Pacific Railway Ltd. (NYSE: CP) has a median target price of $66.76 from 14 brokers. Shares are trading today at $61.24, for an implied gain of $5.52, or 9%. Canadian Pacific’s forward P/E is 13.83 and the company pays a dividend yield of 2%. The stock’s 52-week trading range is $44.74-$69.92, and at today’s price that’s about 37% above its 52-week low, posted earlier this morning, and 12% below the 52-week high. Canadian Pacific reported earnings earlier this week and missed both EPS and revenue estimates. The company’s intermodal freight volume fell by nearly -11%, but coal volumes rose by almost 22%. The company also benefited from a 27% increase in fertilizer shipments.

Diana Shipping Inc. (NYSE: DSX) has a median target price of $12.00 from 13 brokers. Shares are trading today at $8.12, for an implied gain of $3.88, or 48%. Diana’s forward P/E is 9.82 and the company does not pay a dividend. The stock’s 52-week trading range is $6.59-$14.23, and at today’s price that’s about 23% above its 52-week low, posted earlier this morning, and 43% below the 52-week high. Diana is a dry-bulk shipper of iron ore, coal, grain, and other commodities. The entire dry-bulk industry has suffered from an oversupply of ships, and in its most recent quarterly report, the company’s operating income fell about -17% and it missed EPS estimates. EPS estimates for the September quarter have been shaved to $0.31, about -10% below the June quarter’s results.

DryShips, Inc. (NASDAQ: DRYS) has a median target price of $6.00 from 9 brokers. Shares are trading today at $2.73, for an implied gain of $3.27, or 120%. DryShips’ forward P/E is 4.37 and the company does not pay a dividend. The stock’s 52-week trading range is $1.75-$6.44, and at today’s price that’s about 56% above its 52-week low, posted earlier this morning, and 58% below the 52-week high. From an all-time high in October 2007 over $120/share, DryShips has collapsed, partly on general economic conditions and partly on bad management decisions. The company is trying to build up its offshore drilling business to replace its dry-bulk shipping, but that is such an expensive endeavor that it hardly seems likely to pull the shares out of the doldrums any time soon.

Excel Maritime Carriers Ltd. (NYSE: EXM) has a median target price of $2.75 from 8 brokers. Shares are trading today at $2.76, above its median price target. Excel’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $1.63-$6.63, and at today’s price that’s about 69% above its 52-week low, posted earlier this morning, and 58% below the 52-week high. Excel reported earnings earlier this week and managed to miss very ugly targets. The consensus EPS estimate called for a loss of -$0.17, but Excel posted an EPS loss of -$0.25. Everything about the quarter was worse than a year ago, and the nine-month roll-up is a loser from top to bottom. That the shares are trading above their target price only means that analysts have stopped paying attention to this stock.

Frontline Ltd. (NYSE: FRO) has a median target price of $7.25 from 10 brokers. Shares are trading today at $5.73, for an implied gain of $1.52, or 27%. Frontline’s forward P/E is negative and the company pays a dividend yield of 1.6%. The stock’s 52-week trading range is $3.88-$29.15, and at today’s price that’s about 48% above its 52-week low, posted earlier this morning, and 80% below the 52-week high. Frontline may be the weakest of any shipping company. The company’s own outlook for 2012 calls for an even worse year than 2011. A slide into bankruptcy may be all that’s left here.

JB Hunt Transport Services Inc. (NASDAQ: JBHT) has a median target price of $49.00 from 26 brokers. Shares are trading today at $42.72, for an implied gain of $6.28, or 15%. Hunt’s forward P/E is 17.53 and the company pays a dividend yield of 1.2%. The stock’s 52-week trading range is $34.42-$49.12, and at today’s price that’s about 24% above its 52-week low, posted earlier this morning, and 13% below the 52-week high. JB Hunt has turned more attention to the intermodal market and that is having a good effect on revenue and profits. In the third quarter, Hunt reported intermodal volume increased 15% and revenue increased by 24%. Meanwhile, the company’s traditional trucking business rose just 2%. Hunt’s future is in the intermodal business, and the company knows it. The current price target could be easily set higher, and Hunt might just as easily drive through it too.

LandStar System Inc. (NASDAQ: LSTR) has a median target price of $51.50 from 18 brokers. Shares are trading today at $45.44, for an implied gain of $6.06, or 13%. Hunt’s forward P/E is 17.49 and the company pays a dividend yield of 0.5%. The stock’s 52-week trading range is $35.85-$49.66, and at today’s price that’s about 27% above its 52-week low, posted earlier this morning, and 8.5% below the 52-week high. Landstar reported solid earnings growth on Monday, and raised EPS guidance for the fourth quarter to $0.62-$0.67. Analysts had been predicting EPS of $0.60 for the current quarter. Landstar’s largest business is contracting with independent truckers under exclusive lease agreements. It’s intermodal volumes are quite small, but the company has been doing very well without it — and so have shareholders.

Paul Ausick