Infrastructure Bill: The Cowen Insight

Written by Matt Elkott, Jason Seidl, Bhairav Manawat and Elliot Alper, TD Cowen
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Late Nov. 5, Congress passed the bi-partisan $1.2 trillion infrastructure bill, which President Biden is expected to sign soon. While not nearly enough went to traditional infrastructure needs, this was a clear win for the transportation space.

While not all of the bill involves traditional infrastructure spending, there are notable funds designated for such projects. Indeed, the bill includes $110 billion for roads, bridges and major infrastructure projects, $39 billion for public transit modernization, $66 billion for passenger/freight rail, $17 billion for port infrastructure and $25 billion for airports.

Traditional infrastructure projects have historically required more goods to be hauled by trucks while simultaneously luring truck drivers over to the construction trade. This mix should help keep truckload pricing higher, all other things being equal. Many of the larger projects specifically require flatbed trucking transportation. Some public carriers have minimal exposure to this area.

Within our machinery and transportation OEM coverage, we see the most material revenue opportunities from the infrastructure bill for Caterpillar (CAT), Wabtec (WAB) and Cummins (CMI). Other companies should see benefits, albeit to a less significant and direct extent. We do not expect meaningful revenue opportunities directly tied to the bill to begin trickling down until late next year/early 2023.

However, equipment expenditures in the private sector could experience an earlier uptick, as confidence about government spending sees a step-function increase. This is one of the drivers of our growth forecast of 29% and 12% for CAT’s North American construction equipment revenue in 2022 and 2023, respectively. Many infrastructure projects start with digging, demolishing, filling and flattening of structures and terrains, tasks that involve earth moving equipment. The Administration estimates that 173,000 miles of highways and roads and 45,000 bridges are in poor condition. By some estimates, one mile of road rehabilitation costs ~$0.4 million. This would be part of the $110 billion in funding for roads and bridges. 

For WAB, the bulk of the revenue opportunity lies in the following allocations: 

• $66B for passenger and freight rail.
• $39B for public transit. 
• $11B for transportation safety programs. 
• Various GHG emission reduction initiatives, which could, among other things, drive demand for WAB’s FLXDrive line-haul locomotive. However, specifically on FLXDrive, we do not expect meaningful incremental revenues before late 2023 at the earliest. Even CN’s recent FLXDrive order is unlikely to be delivered before 2023, if not beyond.

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