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巴克莱-美股-航空运输业-巴克莱产业会议要点-225-24页.pdf
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巴克莱-美股-航空运输业-巴克莱产业会议要点-225-24页.pdf
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Equity Research
25 February 2019
CORE
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with
companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts
based outside the US who are not registered/qualified as research analysts with FINRA.
PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 18.
Restricted
- Internal
Airlines & Transportation
Takeaways from Barclays 2019
Industrial Select Conference
Reflecting on our 36th annual Industrial Select Conference, we think lower investor
sentiment and at least domestic US fundamental strength could make for a stock
pickers market in 2019. Of course the data and management commentary suggest 2019
will be a slower growth environment relative to strong outcomes in 2018, especially with
pockets of weakness highlighted primarily in Europe. However, with most airlines and
some smaller cap non-rail transports trading at low relative valuations, we suspect cyclical
US exposed names in our sector could benefit given likely continued earnings expansion.
For railroads, despite valuations that may not immediately screen overtly attractive,
margin improvement from Precision Scheduled Railroad (PSR) strategies and pricing
gains should keep the well owned equities in favor with investors. Beyond fundamentals,
XPO provided a more humble outlook following recent missteps and new leadership at
C.H. Robinson and Spirit Airlines provided rather compelling forward outlooks.
Audience response data suggests investors have the least favorable view on transports
since 2015. Please see details beginning on page two, but investor responses on bias and
through-cycle earnings expectations for transports were the lowest in the past four years.
Relative to the broader industrial universe participating at the conference, transports
remain relatively better owned, but with generally more bearish expectations, a notable
departure from prior years when transports were near the top in conference expectations.
Railroad presentations highlight some first quarter challenges, but a bullish PSR fueled
outlook. Numerous managements highlighted a more difficult winter in 2019 as
impacting some demand and cost during the first quarter; but nearly all suggested
volume should accelerate out of winter. On PSR plans, Union Pacific remains elusive in
providing a timeline to achieve a mid 50s OR, but a new COO suggests the company is
committed to gaining efficiencies. On the other hand, Norfolk’s PSR inspired new
operating plan lays out aggressive financial targets, but we question if management has
the proper experience to deliver rapid results.
On freight and logistics, it appears J.B. Hunt and XPO could take time to win investor
favor. J.B. Hunt is likely to see continued growth outside its core intermodal business, but
rail price inflation could keep core growth low and margins muted. For XPO, we were
encouraged by a more humbled management outlook and low investor expectations, but
business losses in 2019 will take time to rebuild.
Airline commentary generally favorable; management driving improvement at United
and Spirit. Apart from some current operational challenges and slightly lower revenue
outlook from Southwest, the domestic outlook remains relatively robust in early 2019.
INDUSTRY UPDATE
North America Airlines
POSITIVE
Unchanged
North America Transportation
POSITIVE
Unchanged
North America Airlines
North America Transportation
Brandon R. Oglenski
+1 212 526 8903
brandon.oglenski@barclays.com
BCI, US
Matthew Wisniewski, CPA
+44 (0)20 3134 6823
matthew.wisniewski@barclays.com
Barclays, UK
David Zazula, CFA
+1 212 526 5108
david.zazula@barclays.com
BCI, US
Matthew Preston
+1 212 526 5752
matthew.preston@barclays.com
BCI, US
Barclays | Airlines & Transportation
25 February 2019 2
2019 ISC Audience Response Key Takeaways for Transports
This past week we hosted presentations at our annual Industrial Select Conference by
senior management from the six public Class 1 rails, CHRW, JBHT and XPO as well as UAL
and SAVE. Throughout the presentations, we polled the audience on topics ranging from
stock ownership and sentiment to valuation expectations and investment risks (Figure 1).
We also compare results to companies who also attended in 2018 (Figure 2-3) and
historical conferences (Figure 4).
Following are a few takeaways from the audience response system (ARS):
After a very positive and bullish conference in 2018, which followed both tax reform and
a strong acceleration in freight markets and consumer demand in the fourth quarter of
2017, this year was marked with lower expectation and increased concerns. Looking at
the ARS data, investor positivity stepped back from 51% last year to 43% this year,
while transport investor confidence fell further from 65% to 40%.
When excluding airlines, the weighted average target multiple on 2019 EPS fell to 16.3x
from 17.9x last year, putting expectations at a similar level as the 2015 conference.
Notably, attendees target multiple for XPO sharply contracted from last year, following a
number of idiosyncratic events. For the railroads, investors were consistent with
expectations for target valuations on CN, CP and UNP from 2018.
Compared to our conference in 2018, investor focus did not materially change. For the
second year in a row, core growth was investors’ main investment concern at 35% in
2019, while airline investors were more concerned with margin and execution.
Turning to airlines specifically, both UAL and SAVE target multiple on 2019 EPS
continues to be significantly discounted to the average transport company; however,
both targets represent material expansion above current 2019 P/E ratios on our
estimates.
In terms of cash priorities, investors continue to focus on share buybacks as the
principal use of excess cash.
Please find our previously published conference feedback notes for each presenting
company starting on page seven.
Barclays | Airlines & Transportation
25 February 2019 3
FIGURE 1
Transportation and Airline Audience Responses 2019 Barclays Industrial Select Conference
Source: Barclays Research
ISC 2019: Transportation Audience Response Question Results
Transportation Airlines Averages
CN CHRW CP CSX KSU NSC UNP JBHT XPO UAL SAVE T/A Conf. Diff.
Do you currently own the stock?
Yes - Overexposed 32% 0% 67% 33% 18% 27% 45% 13% 15% 13% 23% 26% 22% 4%
Yes - Marketw eight 5% 0% 0% 4% 11% 7% 0% 3% 3% 13% 0% 4% 5% -1%
Yes - Underexposed 5% 0% 0% 4% 4% 13% 3% 0% 3% 0% 0% 3% 3% 0%
No 59% 100% 33% 58% 68% 53% 52% 84% 79% 75% 77% 67% 70% -2%
What is your general bias
toward the stock right now?
Positive 46% 23% 64% 52% 26% 43% 58% 25% 23% 40% 36% 40% 43% -3%
Negative 8% 8% 0% 0% 19% 29% 9% 16% 40% 7% 9% 13% 14% -1%
Neutral 46% 69% 36% 48% 56% 29% 33% 59% 38% 53% 55% 47% 43% 4%
In your opinion, through-cycle
EPS growth will be?
Above peers 48% 46% 47% 48% 37% 23% 52% 32% 43% 35% 70% 44% 46% -2%
In-line w ith peers 38% 38% 47% 48% 37% 62% 48% 61% 35% 53% 20% 44% 40% 4%
Below peers 14% 15% 5% 4% 27% 15% 0% 7% 22% 12% 10% 12% 14% -2%
In your opinion, what should the
company do with excess cash?
Bolt-on M&A 0% 8% 0% 0% 6% 0% 0% 16% 10% 6% 17% 6% 20% -14%
Larger M&A 10% 8% 24% 0% 0% 0% 6% 5% 7% 6% 8% 7% 8% -2%
Share Repurchases 45% 46% 48% 68% 50% 79% 57% 53% 50% 44% 17% 51% 30% 20%
Dividends 10% 8% 19% 11% 22% 21% 17% 11% 3% 25% 0% 13% 10% 3%
Debt Pay-dow n 3% 0% 0% 11% 0% 0% 0% 0% 27% 6% 25% 7% 15% -9%
Internal Investment 31% 31% 10% 11% 22% 0% 20% 16% 3% 13% 33% 17% 16% 1%
On what multiple of 2018 EPS
should the company trade?
Less than 10x 0% 0% 0% 0% 9% 6% 0% 0% 30% 22% 14% 7% 4% 3%
10-12x 0% 6% 0% 0% 0% 0% 0% 22% 20% 52% 21% 11% 13% -2%
13-15x 13% 6% 8% 11% 32% 22% 16% 33% 30% 17% 43% 21% 34% -13%
16-18x 75% 56% 56% 68% 45% 72% 58% 26% 17% 9% 21% 46% 35% 10%
19-21x 4% 31% 28% 18% 14% 0% 24% 11% 3% 0% 0% 12% 10% 2%
Higher than 21x 8% 0% 8% 4% 0% 0% 3% 7% 0% 0% 0% 3% 4% -1%
Weighted average 17.3X 17.4X 18.1X 17.4X 15.6X 15.8X 17.4X 15.4X 12.3X 11.4X 13.1X 15.6x 15.4X 1%
What is the most significant
investment issue?
Core Grow th 31% 59% 50% 45% 13% 8% 20% 71% 19% 11% 0% 30% 42% -12%
Margin Performance 8% 29% 10% 18% 8% 33% 34% 18% 13% 50% 15% 22% 19% 2%
Capital Deployment 38% 6% 30% 23% 0% 8% 6% 4% 3% 6% 15% 13% 13% -1%
Execution / Strategy 23% 6% 10% 14% 79% 50% 40% 7% 66% 33% 69% 36% 26% 10%
Barclays | Airlines & Transportation
25 February 2019 4
FIGURE 2
Select Transportation and Airline Companies’ Audience Responses From 2018 and 2019 (1/2)
Source: Barclays Research
ISC 2019: Transportation Audience Response Question Results
CN CP JBHT KSU SAVE
2019 2018 % ch. 2019 2018 % ch. 2019 2018 % ch. 2019 2018 % ch. 2019 2018 % ch.
Ownership?
Yes - Overexposed 32% 11% 21% 67% 55% 12% 13% 30% -18% 18% 38% -20% 23% 18% 5%
Yes - Marketw eight 5% 15% -10% 0% 5% -5% 3% 4% -1% 11% 6% 4% 0% 0% 0%
Yes - Underexposed 5% 11% -7% 0% 0% 0% 0% 4% -4% 4% 0% 4% 0% 0% 0%
No 59% 63% -4% 33% 40% -7% 84% 61% 23% 68% 56% 12% 77% 82% -5%
General bias?
Positive 46% 41% 4% 64% 81% -17% 25% 56% -31% 26% 75% -49% 36% 37% 0%
Negative 8% 31% -23% 0% 0% 0% 16% 12% 4% 19% 6% 12% 9% 21% -12%
Neutral 46% 28% 18% 36% 19% 17% 59% 32% 27% 56% 19% 37% 55% 42% 12%
Through-cycle EPS?
Above peers 48% 55% -8% 47% 53% -6% 32% 67% -35% 37% 88% -52% 70% 56% 14%
In-line w ith peers 38% 34% 4% 47% 47% 1% 61% 28% 33% 37% 6% 31% 20% 17% 3%
Below peers 14% 10% 4% 5% 0% 5% 7% 6% 2% 27% 6% 21% 10% 28% -18%
Use of excess cash?
Bolt-on M&A 0% 0% 0% 0% 0% 0% 16% 17% -1% 6% 0% 6% 17% 0% 17%
Larger M&A 10% 0% 10% 24% 19% 5% 5% 8% -3% 0% 0% 0% 8% 13% -4%
Share Repurchases 45% 33% 11% 48% 38% 10% 53% 42% 11% 50% 75% -25% 17% 19% -2%
Dividends 10% 8% 2% 19% 19% 0% 11% 17% -6% 22% 8% 14% 0% 6% -6%
Debt Pay-dow n 3% 25% -22% 0% 6% -6% 0% 0% 0% 0% 8% -8% 25% 50% -25%
Internal Investment 31% 33% -2% 10% 19% -9% 16% 17% -1% 22% 8% 14% 33% 13% 21%
Multiple of 2018 EPS?
Less than 10x 0% 0% 0% 0% 0% 0% 0% 6% -6% 9% 0% 9% 14% 14% 0%
10-12x 0% 0% 0% 0% 0% 0% 22% 6% 17% 0% 0% 0% 21% 21% 0%
13-15x 13% 16% -4% 8% 0% 8% 33% 6% 28% 32% 18% 14% 43% 29% 14%
16-18x 75% 76% -1% 56% 73% -17% 26% 44% -19% 45% 27% 18% 21% 21% 0%
19-21x 4% 8% -4% 28% 20% 8% 11% 28% -17% 14% 45% -32% 0% 0% 0%
Higher than 21x 8% 0% 8% 8% 7% 1% 7% 11% -4% 0% 9% -9% 0% 14% -14%
Weighted average 17.3X 16.8X 3% 18.1X 18.0X 0% 15.4X 17.5X -12% 15.6X 18.4X -15% 13.1X 14.4X -9%
Most signif. Inv. Issue?
Core Grow th 31% 18% 13% 50% 62% -12% 71% 0% N/A 13% 31% -18% 0% 14% -14%
Margin Performance 8% 45% -38% 10% 0% 10% 18% 0% N/A 8% 38% -30% 15% 14% 1%
Capital Deployment 38% 9% 29% 30% 15% 15% 4% 0% N/A 0% 8% -8% 15% 21% -6%
Execution / Strategy 23% 27% -4% 10% 23% -13% 7% 0% N/A 79% 23% 56% 69% 50% 19%
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