Wall Street’s recent disdain for the transportation sector continued on Friday, as analysts expressed concerns over “rapidly” deteriorating market conditions and a growing risk of a freight recession.
BofA Securities analyst Ken Hoexter downgraded nine transport stocks on Friday, including two double downgrades. J.P. Morgan’s Brian Ossenbeck actually upgraded one stock, but slashed his stock price targets on more than a dozen others.
The Dow Jones Transportation Average DJT,
Also read: Dow transports selloff may be warning of something more than just a macro speed bump.
““The risk of a freight recession is rising and likely inevitable for an industry where capacity additions always overshoot demand and rates are still near all-time highs.””
After such a steep drop in the sector, J.P. Morgan’s Ossenbeck said many investors have asked about how much downside was left, and what looks attractive after the selloff, but he recommended it’s still better to cut bait than to bottom fish.
“Overall, we didn’t find much conviction in bottom-fishing at this point based on our conversations, despite the significant drop over the last two weeks,” Ossenbeck wrote in a research note.
BofA’s Hoexter said he downgraded about a third of the stocks he covers given “deteriorating demand outlooks and rapidly falling freight rates.” He wrote in a note to clients that freight market signals have turned “increasingly softer” amid signs that demand is waning, and not because of increased capacity.
Among those downgraded, shares of package-delivery giant United Parcel Service Inc. UPS,
Hoexter cut his rating to neutral from buy and reduced his price target to $204 from $243, citing a consumer growth outlook that is “coming under increasing pressure.” While UPS was seeing increased pricing potential amid improving industry surcharges, it was also experiencing a “decelerating pace” of volume growth, Hoexter wrote.
He also downgraded Canadian Pacific Railway Ltd. CP,
For Schneider National Inc. SNDR,
JPMorgan’s Ossenbeck said he cut price targets and earnings estimates on multiple transports stocks because “truckload market conditions rapidly deteriorated in the back half of March.”
While fundamentals were “bad” and recent hawkish comments by the Federal Reserve haven’t helped, his concerns were more about “the limited guardrails ahead as the consumer weakens and inventory re-stocking ends.”
“The risk of a freight recession is rising and likely inevitable for an industry where capacity additions always overshoot demand and rates are still near all-time highs,” Ossenbeck wrote in a research note.
He cut his price targets on 14 stocks, including UPS’s target to $229 from $262. However, he upgraded C.H. Robinson Worldwide Inc. CHRW,
For C.H. Robinson, Ossenbeck said the company could take market share in a down freight market and expand margins, as it had repriced more than half its contracts just before rates dropped and had already announced a big increase in its workforce for 2022.
Source: finance.yahoo.com