This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
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Stock performance in the transportation sector has been very uneven, reflecting the varying fortunes of particular industries within the sector. The median year-to-date-stock price has declined for all industries in the Zacks transportation universe, as shown below, and compares to a 16.5% stock decrease for the S&P 500.
- Airlines (41.0)%
- Equip & Leasing (40.5)%
- Shipping (32.7)%
- Air Freight (26.8)%
- Railroads (21.3)%
- Trucking (18.3)%
- Volume weakness - as the global recession takes hold, we expect volumes to weaken from current levels as fewer businesses ship goods, whether by air, sea, rail, or road, and fewer individuals decide to travel, which will hurt airlines
- Waning pricing power - to date, pricing has been fairly solid, particularly in those industries that are able to pass through rising fuel costs through fuel surcharges, such as railroads and trucking. Airlines have managed to add revenues through surcharges for second bags and other items. However, as the recession takes hold, we expect revenues to come under pressure, due to competitive pressures as companies fight for a share of a smaller pie
- Falling fuel prices - declining fuel prices, a significant line item on income statements for many transportation companies, should help alleviate cost pressures; on the negative side, this will hurt revenues as fuel surcharge revenue recedes
More importantly, other companies are also attempting to renegotiate charter rates with EXM. While charters are contractual commitments that cover an agreed-upon term, legal challenges would likely take a long time to sort out, which could prove more harmful to EXM than just accepting the lower charter rates.
Moreover, a number of other companies in the dry bulk shipping industry have cut dividends to conserve capital. We would not be surprised to see companies in other industries cut payouts as the global recession takes hold. Notably, companies in the railroad industry have declined to provide 2009 earnings guidance due to the uncertainties created by the global economic slowdown.
At this time, we see no near-term opportunities in this space. There are currently no stocks with Zacks Ranking of 1 in the covered transportation universe.
We would avoid companies that are in very volatile industries, such as shipping and airlines. Stock prices in these industries can display enormous gains and losses on a frequent basis and are not for the faint of heart.
Specific Sell recommendations include Overseas Shipholding Group, Inc. (OSG), the second largest publicly listed oil tanker owner in the world, and China Eastern Airlines Corporation Limited (CEA - Snapshot Report), one of the 3 largest airliners in China by fleet size and the primary air carrier serving Shanghai.
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