Wolfe Trahan Downgrades 2012 Earnings

Wolfe Trahan Downgrades 2012 Earnings

Wall Street research firm Wolfe Trahan Group is reducing its estimates for transportation earnings per share as economic headwinds gain strength.

The research firm reduced its 2012 EPS forecasts for trucking by 12 percent, air freight and logistics by 9 percent and railroads by 5 percent on Sept. 7.

Wolfe Trahan downgraded its ratings for UPS, Old Dominion Freight Lines and Saia to “peer perform” and Atlas Air and Canadian National to “underperform.” It upgraded railroads CSX and Genesee & Wyoming to “outperform.”

However, the firm’s short-term forecast for air freight and surface transportation is optimistic: “In the near-term, we believe our entire group is poised for a bounce.” That’s because freight demand is holding up despite dire predictions of another recession, falling consumer confidence and tumbling stock values.

Trucking capacity remains tight compared with pre-recession levels, and that should prevent rates from plunging and maintain pricing inother modes as well.

Wolfe Trahan doesn’t expect much decline in shipping, even though it now expects GDP growth to drop to 1 percent in the second half of this year and in 2012.

“We see no evidence of a massive freight recession, but rather sustained slower growth,” analysts Ed Wolfe and Scott Group said in a Sept. 7 note to investors.

Over the next year, Wolfe Trahan expects railroads, truckers and air cargo and logistics companies that can sustain profits and grow to hold an advantage.

The firm sees “strong secular pricing gains” ahead for railroads despite slowing demand. Truckload carriers will enjoy higher pricing driven by capacity constraints.

Less-than-truckload carriers with high-cost networks are more exposed to risk in a downturn and will have a harder time holding ontohigher rates, the firm said.

The outlook for air cargo is less elevated. Tonnage and pricing have dropped since peaking in May 2010, and capacity is rising, Wolfe Trahan said.

“We prefer asset-light and non-asset-based models within our broader air freight and logistics coverage,” the analysts said in their report.

Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter at @wbcassidy_joc