Cowen: “Railroads Are Generally Well-Positioned; 2021 Carloads Will Be Strong”

Written by Andrew Corselli, Managing Editor
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Cowen analyst Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor) said, “In our view, with lower capex, the Class I rails are well-positioned to pay down debt."

Citing “increased macroeconomic uncertainty and corporate debt in focus across various sectors,” Cowen and Company recently delved into current debt levels at major railroad and trucking firms, and discussed actions these companies could take to combat the difficult times.

Cowen analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Adam Kramer went on to note that “In our view, with lower capex, the Class I railroads are well-positioned to pay down debt. Conversely, a few trucking and logistics names warrant keeping a closer eye on.”

“After the close on March 30, 2020, LTL carrier ARCB (ArcBest Corp.) drew down the remaining $180MM on its revolving credit facility and borrowed $45 million under its accounts receivable securitization program,” the analysts said. “These are proactive measures, but they speak to ARCB’s view that upcoming months in freight will be very challenging, given the shutdown of many parts and sectors of the country.”

Among the railroads, CN has the lowest debt/EBITDA ratio.

In Cowen’s coverage area, the companies that are “best-positioned from a financial standpoint” are ODFL (Old Dominion Freight Line) and EXPD (Expeditors International of Washington). The ones that have the least strength in their financial structures are DSKE (Daseke Inc.) and XPO (XPO Logistics Inc.). We note that among the railroads, CNI (CN) has the lowest debt/EBITDA ratio, while CSX’s is the highest. In our view, the railroads are generally well-positioned; we continue to believe that carloads in 2021 will be strong, and also note that with PTC spend far lower in 2020 and 2021 than in recent years and the railroads lowering other capex needs, free cash flow and lower debt balances should ensue.

“In terms of capital spending, we believe trucking firms will increase the average age of their fleets, as we do not expect any new orders or much in the way of deliveries of Class trucks in 2020 (especially given plant shutdowns). We believe TFII (TFI International Inc.) is in the best position among the carriers we follow, as 2019 marked the end of a big capital program that saw it bring the average age of its U.S. fleet down to less than two years.”

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