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Can Transportation Services Industry Maintain Its Momentum?

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The diversified transportation sector, which includes airline operators, railroads, truckers and shippers, to name a few, performed well in the first half of 2018. Strong U.S. macro-economic fundamentals, substantial surge in manufactured and retail goods along with a strong labor market are anticipated to fuel the transportation sector’s growth. Consequently, companies offering equipment financing and leasing, logistics and supply chain management services to transporters have also rebounded in 2018.

Growth Inducing Policies

The two pro-growth agendas of President Trump, namely, significant cut in corporate taxes and deregulation are major catalysts to the transportation services industry. A large part of transporters book much of their revenues in the homeland. Consequently, a significant reduction in corporate tax rate borne by transporters would be immediately accretive to cash flow.

Moreover, the Trump administration intends to spend a whopping $1.5 trillion on several infrastructure projects like constructing new roads, bridges, highways, railways and waterways across the country over a period of 10 years. This project will generate significant demand for manufacturing sector, which in turn will raise demand for freight, benefiting the transportation services industry.   

Robust Demand for Freight

A thriving and improving economy supports the overall bullishness of the transport sector, as it implies that more goods are being transported across the United States. Improved global growth prospects, sustained business and consumer confidence have in turn helped the transportation sector recover from the sluggishness in 2017 to quite an extent.

Economic growth and demand for freight are positively correlated. Healthy growth in manufacturing, construction, mining and automobile production will increase demand for freight.

Strong U.S. Economic Fundamentals

The revised estimate has shown that the U.S. GDP grew at 4.2% in the second quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009. On an average, in the first half of 2018, the U.S. economy grew 3.2%, higher than 3% annual GDP growth that the Trump administration desired.

On Aug 28, the Conference Board has reported that its U.S. consumer confidence index for the month of August has jumped to 133.4, marking its highest reading since October 2000. On Sep 4, the ISM reported that the U.S. manufacturing index for the month of August was 61.3%, a 14-year high.

Transportation Services Industry

Year to date, the Zacks Transportation Services Industry increased 3.3%. In comparison, stock price of five major Transpiration Services providers, Echo Global Logistics Inc. (ECHO - Free Report) , Matson Inc. (MATX - Free Report) , Hub Group Inc. (HUBG - Free Report) , Trinity Industries Inc. (TRN - Free Report) and C.H. Robinson Worldwide Inc. (CHRW - Free Report) rallied 37.1%, 26.9%, 14%, 9% and 7.2%, respectively.

All abovementioned stocks barring C.H. Robinson sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bottom Line

A robust U.S. economy, massive tax haul and business friendly policies of the government are anticipated to fuel transportation services industry’s growth. These positives will further drive the stock price of transportation services providers.

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