Jason Seidl, Analyst, The Cowan Group

Baltimore, MD
NORTHEAST ASSOCIATION
OF RAIL SHIPPERS CONFERENCE
APRIL 2013
www.cowensecurities.com
| Member: FINRA/SIPC
Jason H. Seidl, Director
646.562.1404
[email protected]
Table of Contents
Page
[PROJECT NAME]
I.
Macro Trends
3
II.
Rail Trends
6
III.
Trucking Trends
9
IV.
Cowen Securities Sector Overview
13
V.
Wrap Up
19
2
I Macro Trends
I.
3
Economyy Growingg Slowlyy
4
Manufacturingg Still Growing;
g; Confidence Holdingg Up
p
Source: Federal Reserve Bank
5
II Rail Trends
II.
6
„ YTD traffic up 1.8%, up 3.7% excluding coal, and up 4.8% excluding coal
and
d agricultural
i lt
l products.
d t
„ Coal, which is down 6.4% YTD, but declines are moderating.
„ Crude could be the next big thing. Petroleum products are up 53% YTD.
„ We have also seen strong increases in intermodal and non-metallic
minerals.
„
Ag.
g is hindered by
y record drought,
g , but outlook improves.
p
„ Pricing somewhat tempered, but improving slightly and still in line with or
just ahead of rail inflation.
„ Rails continue to give back to investors.
investors
7
Y/Y
/ Weeklyy Rail Traffic Growth
Source: Cowen Securities and Railshare
8
III Trucking Trends
III.
9
Current Truckingg Industryy Views
TL Trucking
„ Capacity concerns have not yet materialized due to demand softness, but
this could change with upcoming HOS regulation.
„ Difficult driver market leaves unseated portions of fleets.
„ Pricing gains are the lowest among all modes of transportation.
LTL Trucking
„ Demand sluggish, but minor growth seen.
„ Pricing tempered somewhat at most carriers, but still better than TL.
„ Industry
y is awaiting
g ABFS/IBT
/
settlement.
10
11
Truckingg Rate Data
12
IV Cowen Securities
IV.
Sector Overview
13
Global Energy
gy and Commodityy Supply
pp y Chain Focus
Cowen Securities Employs a World Class Expertise Across the Energy and Commodity Supply Chains
14
Oil Market – Unconventional Rigg Counts byy Playy
Source: Bloomberg
15
Domestic Steel Trends
Source: Bloomberg, AISI, MSCI
16
Coal
U.S. Total Monthly Coal Production, January 2011 through March 2013
Source: Bloomberg, AISI, MSCI
17
Record Agricultural
g
Crop
p Expected
p
in U.S.
Source: USDA
18
V Wrap Up
V.
ƒ TL
ƒ LTL
ƒ RAIL
Q
Questions?
ti
?
19
Valuation Methodology & Investment Risks
Valuation Methodology
We use one-year forward PE multiples to value covered companies in the trucking sector. We support our valuation with EV/EBITDA and tangible book value analysis.
We use one-year forward PE multiples to value covered companies in the air freight and logistics industry. We support our valuation with EV/EBITDA and tangible book value analysis.
We use one-year forward PE multiples to value covered companies in the railroad sector. We support our valuation with EV/EBITDA and tangible book value analysis.
Investment Risks
Primary Trucking Investment Risks Risk of economic downturns and their impact on tonnage and pricing.
Litigation risk stemming from accidents and fatalities.
Competitive threat posed by other modes of freight transportation such as the railroad sector.
Rising fuel prices could significantly increase truckers’ operating costs.
Environmental concerns and regulations associated with air pollution.
Driver availability and stricter driver screening requirements.
Risk of severe weather disrupting trucking operations.
Primary Air Freight and Logistics Industry Risks:
Risk of economic downturns and their potential impact on the integrated parcel business.
Rising fuel prices could significantly increase operating costs.
Competitive threat posed by other modes of freight transportation such as rail and trucking.
Risk of doing business abroad including currency exchange, political, and legal risks.
Risk of terrorism and the costs associated with more stringent security requirements.
Primary Rail Investment Risks Risk of economic downturns and their impact on rail traffic and pricing.
Regulatory risk posing a threat to the railroads’ ability to achieve sufficient returns on their investments.
The possibility of high-speed passenger rail encroachment.
Litigation risk stemming from accidents and fatalities.
Competitive threat posed by other modes of freight transportation such as trucking.
High capital spending required to build and maintain railroad networks and to replace cars and locomotives.
Risk of severe weather disrupting railroad networks.
Rising fuel costs and the lag effect of fuel surcharge recovery.
Disclosures
Disclaimer:
The information presented in this report is for informational purposes only. It was prepared based on information and sources that we believe to be reliable, but we make no representations or
guarantees as to the accuracy or completeness of the information contained herein. This report is not to be construed as an offer to sell or a solicitation of an offer to buy any security. The opinions
expressed in this report may change without notice.
Certification:
Each analyst identified in this report certifies in accordance with SEC Regulation AC, with respect to any company and securities discussed in this report, that the recommendations and opinions
expressed accurately reflect the analyst's personal views and no part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed
herein.
Required Disclosures:
Cowen Group, Inc. signed a definitive agreement to acquire Dahlman Rose & Company, LLC on February 1, 2013. Dahlman Rose & Company,LLC changed its legal name to Cowen Securities LLC.
on March 11, 2013 and became an indirect wholly owned subsidiary of Cowen Group, Inc. Cowen and Company, LLC as well as Cowen Securities LLC operate independent research departments with
shared supervisory responsibilities of Cowen and Company, LLC senior management. Other than senior management, the affiliates and/or their employees do not contribute to or otherwise discuss the
content of each other’s research reports prior to public dissemination. Additionally, Cowen Group, Inc.maintains information barriers to address the flow of information between and among departments
within Cowen Group, Inc. and among its affiliates.
No analyst who participated in the creation of this report owns securities issued by the subject company.
Cowen Securities LLC and/or its affiliates may have positions in the securities discussed in this report. However, none of those positions equal or exceed 1% of the equity securities outstanding for the
subject company.
Cowen Securities LLC and/or any of its analysts, officers or employees, or any household members do not serve as an officer, director or advisory board member of any of the companies discussed in
this report.
Notice to UK Investors: This publication is produced by Cowen Securities, LLC. which is regulated in the United States by FINRA. It is to be communicated only to persons of a kind described in
Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted to any other person without our consent.
Cowen Securities LLC and its affiliates intend to seek to be a financial advisor or to engage in investment banking services with Genesee & Wyoming, Inc., and as such, may receive compensation
for such services during the next three months following publication of this report. As a result, investors should be aware that the firm might have a conflict of interest that could affect the objectivity of
this report. During the past 12 months Cowen Securities LLC acted as a co-manager for Genesee & Wyoming, Inc.’s secondary public offering of common stock and concurrent offering of convertible
preferred shares.
Cowen Securities LLC is not a tax or legal advisor and provides no legal or tax advice or opinions with respect to the securities recommended in this report.
Cowen and Company, LLC makes a market in the securities of Arkansas Best Corporation, C.H. Robinson Worldwide, Inc., Canadian National Railway Company, Canadian Pacific Railway Limited,
Celadon Group, Inc., Con-way, Inc., CSX Corp., Forward Air Corporation, Genesee & Wyoming, Inc., J.B. Hunt Transport Services, Inc., Kansas City Southern, Knight Transportation, Inc., Landstar
System, Inc., Norfolk Southern Corp., Old Dominion Freight Line, Inc., Saia, Inc., Swift Transportation Co., Union Pacific Corp., Vitran Corporation, Inc. and Werner Enterprises, Inc..
Stock Ratings:
Cowen Securities LLC assigns the following ratings to the securities of its subject companies:
Buy – The fundamentals/valuations of the subject company are improving and the investment return is expected to be 5 to 15 percentage points higher than the general market return.
Sell – The fundamentals/valuations of the subject company are deteriorating and the investment return is expected to be 5 to 15 percentage points lower than the general market return.
Hold – The fundamentals/valuations of the subject company are neither improving nor deteriorating and the investment return is expected to be in line with the general market return.
Ratings Distribution:
Distribution of Ratings/Investment Banking Services (IB) as of 03/31/13
Rating
Count
Ratings Distribution
Buy -rated
152
58.46
Hold -rated
99
38.08
Sell -rated
9
3.46
Count
16
4
0
Investment Banking
10.53
4.04
0.00