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1、Equity Research 24 February 2020 CORE Barclays Capital Inc and or one of its affiliates does and seeks to do business with companies covered in its research reports As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report In
2、vestors should consider this report as only a single factor in making their investment decision This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered qualified as research analysts with FINRA PLEASE SEE ANALYST CERTIFICATIO
3、N S AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 18 Restricted Internal Airlines but near term results diverging for some We note coal challenges in the US as significantly weighing on volume outcomes for the three large US carriers CSX NSC did not attend and UNP further China challenges likely will
4、lead to reduced volume outcomes in the near term However as was the case last year investors appear more focused on improved cost outcomes especially for Precision Scheduled Railroading PSR operational change stories at KSU and UNP Nonetheless we do not want to overlook stronger demand outcomes for
5、carriers such as CN apart from recent network outages CP and KSU as well as CSX s current attractive valuation complemented by a long term growth story in its infancy Airline commentary relatively bullish but MAX fuel and China will make for a volatile 2020 We note only AAL DAL and UAL have direct e
6、xposure to China and all should see a negative impact in the first half of 2020 But importantly domestic commentary remained bullish from nearly all attending airlines including low fare carriers JBLU and SAVE we note JBLU s conviction in delivering on significant earnings growth this year The MAX g
7、rounding will continue to impact cost and growth outcomes especially for LUV and AAL but with production paused at Boeing we are less concerned about large capacity increases when the airplane is back in service Further lower fuel prices will aid all airlines especially considering most 2020 guidanc
8、e appeared relatively conservative Freight market remains subdued but expect demand for airfreight to increase later this year we are growing more bullish on FDX We understand the China situation will lead to lower near term outcomes for both FDX and UPS but we are encouraged once activity resumes a
9、irfreight could be in high demand given likely depleted inventories as well as a lack of passenger freight capacity For XPO and JBHT we were once again reminded of sluggish freight brokerage intermodal and trucking markets in the US but also remain encouraged that lower US capacity should help lift
10、pricing outcomes in late 2020 INDUSTRY UPDATE North America Airlines POSITIVE Unchanged North America Transportation NEUTRAL Unchanged North America Airlines North America Transportation Brandon R Oglenski 1 212 526 8903 brandon oglenski BCI US Matthew Wisniewski CPA 44 0 20 3134 6823 matthew wisnie
11、wski Barclays UK David Zazula CFA 1 212 526 5108 david zazula BCI US Barclays Airlines CP JBHT UNP slightly expanded while SAVE declined Compared to our conference in 2019 investor focus did not materially change For the second year in a row core growth was investors main investment concern at 39 in
12、 2020 while airline investors were more concerned with margin and execution Turning to airlines specifically DAL JBLU and SAVE target multiple on 2020 EPS continues to be significantly discounted to the average transport company however both targets represent material expansion above current 2020 P
13、E ratios on our estimates In terms of cash priorities investors continue to focus on share buybacks as the principal use of excess cash Please find our previously published conference feedback notes for each presenting company starting on page seven Barclays Airlines this set of signed contracts exp
14、ected to feed the beast or keep the network capacity near filled for years to come Following are a few key takeaways from the presentation Near term headwinds are being mitigated guidance remains intact Mr Houle and Mr Reardon announced that the more onerous Western blockade on CN s network had been
15、 lifted and that the company was mitigating the Eastern blockade operationally while the Canadian government works to remove it The majority of the ministerial order limiting train speeds has been lifted with speeds limited only on trains with hazardous materials only when traveling on a small porti
16、on of the CN network Mr Houle reiterated low single digit RTM growth guidance Technology developments are on path Mr Houle and Mr Reardon noted the progress made on autonomous track and train inspections although neither is approved as a sole inspection means by Canadian regulators The company performed a 45 day test of CN s inspection portals that generated 3 000 more defects for correction than manual inspections Investments underway to ready the network for future growth After years of system
