巴克萊美股業(yè)相對價值思考

CORE

NorthAmericaTransportation

ThoughtsonRelativeValuation INDUSTRYUPDATE

EquityResearch

20August2018

Withastrongeconomy,atleastinNorthAmerica,transportresultsin2018havegenerallybeenfavorableandsupportiveofahigherearningsoutlook.However,validmarketconcernssurroundingtradehaveclearlydrivenwinnersandloserswithinthegroup.Wetakeaquicklookatrelativevaluationswithafocusonrailroads.Transportfundamentalsremainnearlyunanimouslyfavorablethissummer,suggestingacontinuationofsolidcyclicaloutcomesheadingintothebackhalfof2018.However,globaltradedisputeshavemarketsconcernedthatthecurrentperiodofmacroexpansioncouldbeshortlived.Withintransports,wethinkthisdisconnectcreatesopportunityforinvestors,especiallyiflessacrimonioustradeoutcomescanbeachieved.Railroadequitieshaveclearlybenefitedthisyear,outperformingtheS&P500andindustrialXLIindexby10%and16%respectively.However,integratoranddomestictruckingequitiessuchasFedExandKnighthavemateriallyunderperformedboththemarketandbroaderindustrials(seepage3fordetails).

Despitelargelyfavorabletransportestimaterevisions(ex-airlines),mostnon-railstockshaveunderperformedasvaluationscompress.Thisyearhasbeenadichotomyforourtransportcoverage:railsandasset-lightstocks,historicallyviewedasrelativelydefensive,haveperformedwellasinvestorsconcernssurroundingcycle‘peak’havegrown,withbothtruckingandintegratorslagging.However,withestimatescomingupacrossthesector,supportedbystrongdomesticfundamentalsandoptimisticmanagementcommentary,wethinkthereisplentyofupsideforacrossourtransportuniverse,especiallyifthereisresolutiononcurrenttradeconflicts.

Railroadshavebeenarelativesanctuaryin2018,butsolidfundamentalsandhighcashyieldskeepusinterested.Firsthalf2018railearningsdemonstratedbroadlythatcarriers’areleveragingrobustdemandtogeneratestronggrowthandmarginimprovement.AndwhilesolidequityperformanceYTDleavesvaluationappearingfulleronanearningsbasis,ourviewofcontinuedstrongresultsandattractivecashyieldskeepusbullishonthegroup.

Outsideofcompany-specific2Q18results,XPO,EXPD,HUBGandFTAIlargelycontinuedthethemeofanoptimisticoutlookfortherestof2018andpositivecommentaryonearly2019.EventhoughXPOdidn’traisefullyearguidance,managementcontinuedtotalkupgrowthprospectsforthecorebusinessintheforeseeablefuturewhilethecompanypursuesanaccretivedeal.HubGroupbothbeatestimatesandraisedfullyearguidanceasmanagementtalkeduppeakseason,discussingthepotentialforbothastrongerandlongerpeakthatwilllikelyalsosupportearly2019results.FTAIreportedstrongresultsfromitsaviationleasingbusiness,andcontinuedtohighlightthelongtermpotentialfromitsinfrastructureinvestmentunit.Pleaseseepage8formoredetailedthoughtsoneachcompany.

NorthAmericaTransportation

POSITIVE

Unchanged

Forafulllistofourratings,pricetargetandearningschangesinthisreport,pleaseseetableonpage2.

NorthAmericaTransportationBrandonR.Oglenski

+12125268903

brandon.oglenski@

BCI,US

MatthewWisniewski,CPA

+12125265143

matthew.wisniewski@

BCI,US

MatthewPreston

+12125265752

matthew.preston@

BCI,US

BarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE18.

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SummaryofourRatings,PriceTargetsandEarningsChangesinthisReport(allchangesareshowninbold)

Company Rating Price Pr

iceTarget EPSFY1(E) EPSFY2(E)

OldNew17-Aug-18Old

New%ChgOldNew%ChgOldNew%Chg

NorthAmericaTransportation PosPos

ExpeditorsIntl.ofWashingtonInc.(EXPD)

OWOW

74.01

78.00

78.00

-

3.223.14

-2

3.553.45

-3

FortressTransportation&InfrastructureInvestorsLLC(FTAI)

OWOW

18.36

20.00

20.00

-

0.370.27

-27

0.520.37

-29

HubGroupInc.(HUBG)

UWUW

51.00

48.00

48.00

-

2.402.78

16

2.753.10

13

XPOLogisticsInc.(XPO)

OWOW

101.71

130.00

130.00

-

3.303.29

0

4.003.95

-1

Source:BarclaysResearch.SharepricesandtargetpricesareshownintheprimarylistingcurrencyandEPSestimatesareshowninthereportingcurrency.FY1(E):CurrentfiscalyearestimatesbyBarclaysResearch.FY2(E):NextfiscalyearestimatesbyBarclaysResearch.

StockRating:OW:Overweight;EW:EqualWeight;UW:Underweight;RS:RatingSuspendedIndustryView:Pos:Positive;Neu:Neutral;Neg:Negative

Transport&AirlinePerformanceandRevisions

Year-to-date,bothrailandasset-lightstockshaveoutperformedthemarket,likelygiventheirrelativelydefensivenatureandinvestorsgrowingconcernsaroundcyclepeak(Figure1).Supportingrailequitieshasbeendoubledigitestimaterevisions,likelypartiallydrivenfromdelayedtaxadjustments,andmultipleexpansion(moredetailinthenextsection),whilebroadlytransportshaveseenmultiplecontraction.Eventhoughtaxreformwasatailwindtoairlineestimates,risingfuelandotherheadwindshavedrivenasubduedoutlookforearnings(Figures2-3).

FIGURE1

Year-to-DateInvestorshaveRewardedRelativelyDefensiveStocks,SuchasRailsandAsset-lightLogisticsNames,WhiletheRestofourTransportCoverageandAirlineStockshaveLargelyUnderperformedtheXLIandS&P500…

Railroadshaveoutperformedthebroadermarketthisyear,alongwithlogistics;withtheremainderofourcoverageunderperformingboththemarketandXLI

Transport&AirlineRelativePerformanceYTD

120

115

110

105

100

95

90

85

80

(rels&p500;wkly;groupavg.)/1

US12%

CAN7%

Log.4%

XLI-6%

Int.-6%

Big"4"-10%

LFA-17%

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18

XLI Trucking U.S.Rails CANRails

Truck-19%

Integrators Logistics Big"4"Airlines LowFareAirlines

Note:/1U.S.railsincludeCSX,NSC,KSUandUNP;CANrailsincludeCNR.TOandCP.TO;TruckingincludesKNX,WERN,HTLDandSNDR;LogisticsincludesCHRW,EXPD,XPOandJBHT;IntegratorsincludesFDXandUPS;Big"4"includesAAL,DAL,LUV,UAL;LFAincludesALGT,ALK,JBLUandSAVE

Source:Thomson;BarclaysResearch:

FIGURE2

…SupportingRailStockOutperformancehasbeenDoubleDigitEstimateRevisions,LikelyBenefitingPartiallyfromTaxReformAdjustments…

15% 13%

10%

22%

StockPerformanceand2019EPSEstimateRevisionsYTD

(indexedtoJan'18;consensus2019eps)

13%

9%

0%

24%

13%

7%

-2%

-3%

-11%

-15%

Rails Logistics Integrators Bg"4"Airlines LowFareAirlines Trucking S&P500StockPerformance Est.Revisons

Note;/1IntegratorsincludeFDXandUPS;RailsincludeCN,CP,CSX,KSU,NSCandUNP;LogisticsincludesCHRW,EXPD,XPOandJBHT;TruckingincludesHTLD,

KNXandWERN;Big“4”includesAAL,DAL,LUVandUAL;LFAincludesALGT,ALK,JBLUandSAVESource:Thomson;BarclaysResearch

FIGURE3

...TaxReformandStrong1H18EarningsSupportingHigherEarningsOutlooksforTransportStocks,butMultiplesHaveCompressedBroadlyforNon-RailEquities.

Calendar2019ConsensusEPSEstimateRevisions

Revisions

Jan

Aug

Ch.

Integrators

FDX

16.66

18.85

13.2%

UPS

7.01

7.93

13.0%

Railroads

CNR.TO

6.08

6.22

2.3%

CP.TO

14.43

15.16

5.0%

CSX

3.11

4.01

29.0%

KSU

6.61

7.03

6.3%

NSC

7.79

10.01

28.5%

UNP

7.14

8.80

23.2%

Asset-light

CHRW

4.02

4.92

22.6%

EXPD

2.79

3.36

20.5%

XPO

3.53

4.32

22.6%

JBHT

5.26

6.39

21.5%

Trucking

HTLD

0.94

0.93

-0.6%

KNX

2.18

2.72

24.9%

WERN

1.84

2.50

36.1%

Big"4"Air

AAL

5.87

5.79

-1.4%

DAL

6.30

6.61

5.0%

LUV

4.97

5.04

1.5%

UAL

7.65

9.60

25.5%

LowFareAir

ALGT

12.05

12.17

0.9%

ALK

7.31

6.09

-16.8%

JBLU

1.99

1.82

-8.9%

SAVE

3.82

4.30

12.4%

P/EMultiple

Notes

Jan

Aug

Ch.

15.0x

13.1x

-1.9x

Transportearningsrevisionslkelybenefitingfromdelayedtaxadjustmentsinadditiontostrongfirsthalfresultsandoptimisticmanagementcommentary.

Outsideofrailequities,transportp/emultipleshavebroadlycompressed,especiallyfortruckingstocks,

withKNXnowtradingataneightturnlowermultiple.

Althoughtaxreformwasatailwindtoestimatesacrossourairlinecoverage,risingfuelandotherheadwindshaveweighedontheoutlookforearnings.

17.0x

15.4x

-1.6x

17.1x

18.7x

1.7x

15.9x

17.4x

1.5x

17.7x

18.4x

0.7x

15.9x

16.4x

0.5x

18.6x

17.4x

-1.2x

18.8x

17.0x

-1.8x

22.2x

19.7x

-2.5x

23.2x

22.0x

-1.2x

26.0x

23.5x

-2.4x

21.8x

19.1x

-2.7x

24.9x

21.3x

-3.6x

20.0x

12.1x

-8.0x

21.0x

14.7x

-6.4x

8.9x

6.5x

-2.3x

8.9x

8.4x

-0.5x

13.2x

11.8x

-1.3x

8.8x

8.5x

-0.3x

12.8x

11.2x

-1.7x

10.0x

10.7x

0.6x

11.2x

10.4x

-0.9x

11.7x

10.4x

-1.3x

Source:Thomson;BarclaysResearch

ALookatRailroadValuations

Althoughrailequityvaluationscurrentlyscreenabitfull,withUSrailstradingataslightpremiumonP/EandbothUSandCanadianequitiesaboveestimatedtaxadjustedEV/EBITDAlevels,cashflowyieldsremainattractive,especiallyforUSrailstocks(Figures4-7).

FIGURE4

USRailEquitiesareLargelyTradingabove5yrAverageRelativeP/EMultiple,WhileCanadianRailsareMostlyinLine…

NorthAmericaRailroadRelativeP/ERatiovs.S&P500

1.4x (NTM;basedonconsensus;a/o8/18/18)/1

1.2

1.0

0.8

0.6

Source:Thomson;BarclaysResearch

FIGURE5

…AfterAdjustingforTaxReform,WeEstimateUSandCanadianRailsAreCurrentlyTradingSlightlyAbove5yrAverageEV/EBITDAMultiples…

14.0x

NorthAmericaRailroadEV/EBITDAMultiples

(NTM;basedonconsensus;a/o8/18/18)/1

12.0

10.0

8.0

6.0

4.0

Note:/1UStaxadjustmentequals5yraveragemultipletimes1.24(1.05forCanadianrails),basedonestimatetaximpacttoearningsprofileofthebusinessSource:Thomson;CompanyReports;BarclaysResearch

FIGURE6

…ButValuationsAppearMoreAttractiveonCashYields,EspeciallyforUSRailEquities.

RailIndustryForwardActualFCFYield

7% (ntmact.;monthly;cfo-capex/mrktcap)

6

5

4

3

2

1

0

Source:Thomson;CompanyReports;BarclaysResearch

FIGURE7

MostofOurRailEquitiesRemainAttractivewithCashFlowYieldsAboveHistoricalAverages…

CurrentRailroadValuationsvs.HistoricalAverage

30x

(consensuntm;fcfyeldbarclaysest.ntm;5yravg.)/1

6%

25x

5%

20x

4%

15x

3%

10x

2%

5x

1%

0x

P/E EV/ Cash P/E EV/ Cash P/E EV/ Cash P/E EV/ Cash P/E

EV/

Cash P/E EV/ Cash

0%

EBITDAYeld EBITDAYeld EBITDAYield EBITDAYeld EBITDAYeld EBITDAYield(rhs) (rhs) (rhs) (rhs) (rhs) (rhs)

Note:/1EV/EBITDAmultipleadjustedforestimatedtaxreformSource:Thomson;CompanyReports;BarclaysResearch

XPO,EXPD,HUBGandFTAI2Q18Takeaways

Belowweprovideabriefsummaryofourthoughtsoneachcompanyfollowing2Q18earningsaswellasprovidekeyassumptionsaroundourupdatedmodels.

XPO2Q18Takeaways

Wherewestand:AswecontinuetowaitforthenextroundofM&A,whichmaybealittlelongerthanpreviouslythoughtgivenmanagement’sapparentwillingnesstowaituntil2019foradeal,theunderlyingbusinesscontinuestoperformwellwitharobusteconomicenvironmentsupportingstronggrowth.AlthoughwewereabitsurprisedgiventhetimingofthecurrentCFO’sdeparture,werespectMr.Hardig’swishestostepdownfromhiscurrentroletospendtimewithfamily.Andwhilethesearchbeginsforareplacement,weseeatalentedmanagementteamthatremainsfocusedongeneratingoutperformanceforshareholders.WeremainOverweightonXPOshares.

XPO2Q18mixed.AdjustedEPSof$0.98beatourandconsensusestimatesof$0.95and

$0.94,respectively.Comparedtoourmodel,strongerlogisticsnetrevenueoffsetsomeweaknessfromtransportation,butlowernetoperatingmarginresultedina5cEBITmiss.Belowthelineitems,includinghigherotherincome,lowerinterestexpenseandlowertaxrate,combinedtoadd9c.AdjustedEBITDAbeatby$7mm,or4c,partiallyduetohigherotherincome.

Weleaveestimateslargelyunchanged,butEPScomesdownasweincorporateanadditional6mmsharesfollowingsettlementoftheforwardsaleagreement.Pleaseseebelowkeymodelassumptionsforourfullyear2018Eand2019Eestimates:

Netrevenue:$8.3bn(14%yoy)&$8.8bn(6%yoy)

EBIT:$822mm(25%)&$980mm(19%)

AdjustedEBITDA:$1.6bn(guidanceofatleast$1.6bn)&$1.8bn(11%)

Netrevenuemargin:47.4%(47.1%in‘17)&47.5%

Netoperatingmargin:9.9%(9.1%)&11.1%

EPS:$3.29(69%)&$3.95(20%)

HubGroup2Q18Takeaways

Wherewestand:Ontopofreportingstrong2Q18results,managementannouncedtheplanneddivestitureoftheMODEagencybusinessasthecompanylooksfornewstrategicoptionstofurtherdiversifythebusinessandenhancereturns.Althoughweareincrementallymorepositive,duetostrongresultsandanoptimisticoutlook,wecontinuetoseegreaterinvestingopportunitieselsewhereintransportsgivenrecentreturnandcashchallengesatHubGroup(pleaseseeour‘HUBGBull&Bear--DebatingFreight2018’published20Apr18).

HUBGreportedstrong2Q18beat.ReportedEPSof66ccameinwellaboveour45candconsensus50cestimates.Comparedtoourmodel,strongergrossrevenuewasslightlyoffsetbyaweakernetrevenuemargin.Combinedwithahighernetoperatingmargin,EBITbeatby21c.Belowtheline,ahighertaxrateandsharecountoffsetapenny.

Wetakenumbersupfollowingstrong2H18guidancefrommanagement.Managementguidancefor13-18%top-linegrowthand12-13%netrevenuemargininthebackhalfoftheyearmorethanoffsethigherquarterlyoperatingcostguidancetotakeour3Qand4Qnumbershigher.Pleaseseebelowkeymodelassumptionsfor3Q18Eand4Q18Eestimates:

Grossrevenue:$1.2bn(16%yoy)&$1.2bn(6%yoy)

EBIT:$35mm(52%)&$43mm(27%)

Netrevenuemargin:12.1%(11.1%in3Q17)&13.0%(11.9%in4Q17)

NetOperatingmargin:23.4%(19.6%)&27.1%(24.9%)

EPS:$0.72(50%)&$0.92(50%)

FortressTransportation2Q18Takeaways

Wherewestand:DespiteastrongperformanceinFTAI’sleasingsegmentwithEBITDAuproughly50%in2Q18;resultscontinuedtobepressuredbytheinfrastructuresegment,whichforthemostpart,hasyettopositivelycontributetoearnings.However,weremainencouragedbystrongerenergymarketfundamentalsthatcoulddriveupsideforFTAI’sinfrastructureassets.Furthermore,givenarobustpipelineoffutureinfrastructureinvestmentsofmorethan$1.5bnthrough2020wecontinuetomodelthesegmentwillbegintomeaningfullycontributetoearningsinthenearfutureashighlightedinourrecentBull&Bearnote(See'FortressTransportation&InfrastructureLLC:Bull&Bear DebatingFreight2018',published8May2018).Withrecentresultsfinallysupportingthedividend,continuedperformanceintheleasingsegmentcombinedwithupsidepotentialininfrastructure,weremainoptimisticontheoutlookforFTAI.

EPSmissesbutFADaboveexpectations.FTAIreportedadjusted2Q18EPS3cbehindourestimateof13candconsensus11c.Comparedtoourmodel,loweroutcomesintheinfrastructuresegment,includingtheJeffersonterminal,ledtothemiss.However,fundsavailablefordistribution(FAD)cameinat$45mmforthequarter,betterthanourestimateof$11mm.

Wetweakestimateslower.Pleaseseekeymodelassumptionsforour3Q18EandFY18Eforecastsbelow:

Revenue:$82mm(35%yoy)&$326mm(50%yoy)

TotalEBITDA:$55mm(67%margin)&$226mm(70%margin)

LeasingSegmentEBITDA:$59mm(90%margin)&$232mm(90%margin)

InfrastructureEBITDA:-$2.4mm(-15%margin)&-$15mm(-22%margin)

FADpershare(FundsAvailableforDistribution):$0.31&$1.61

ExpeditorsInt’l2Q18Takeaways

Wherewestand:EventhoughEXPDearningsunderwhelmedlargelyonweakermargins,wesuspectitwaslikelyduetooptimisticairfreightmarginforecastsgivenrecentimprovementinastrongpricingenvironment.Andwhilewetemperfurthermarginimprovementinthenearterm,wenoterecentstrengthinthecompany’sEuropeanbusinessshouldsupportahealthygrowthoutlookbeyond2018.

EXPD2Q18underwhelms;lowertaxratebeats.ReportedEPSof$0.79was1caboveourandconsensusestimateof$0.78.However,comparedtoourmodel,EBITmissedledbyweakerthanexpectedmarginoutcomesintheairfreightandoceansegments.Belowtheline,alowertaxrateadded8candotheritemsaddedapenny.

Wetakenumbersdownaswelowermarginoutcomeexpectationsforthebalanceof2018,givenstrongairfreightpricingandseeminglychallengedoceanfreightmargins(Figures8-9).Pleaseseebelowkeymodelassumptionsforourfullyear2018Eand2019Eestimates:

Airfreightnetmargin:26.6%(26.1%in’17)&27.4%

Oceannetmargin:27.0%(26.7%)&27.7%

Cons.grossrevenue:$8.0bn(15.0%yoy)&$8.5bn(6.2%yoy)

EBIT:$781mm(11.6%)&$856mm(9.5%)

EPS:$3.14(27%)&$3.45(10%)

FIGURE8

WeaknessinContainerRatesCouldProveSupportiveofOceanFreightMargins,LendingPossibleUpsideto3Q18Estimates

EXPDOceanNetRevenueMarginsvs.CCFICompositeIndex

(annualch.;CCFIInverted)

-45%

-30%

-15%

0%

15%

30%

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

1Q18

45%

900

CCFICompositeIndex(Inverted)

EXPDOceanNetRevenueMargin(rhs,bps)

OceanNRMweakerin2Qthanexpected,wemodelflatmarginsin3Q

EXPD'sOceannetrevenuemarginshaveconsistentlystrongnegativecorrelationwithspotcontainerrates

600

300

0

(300)

(600)

(900)

Source:CompanyReports;Clarkson’sresearch;BarclaysResearch

FIGURE9

StrongAirfreightPricingEnvironmentLikelytoChallengeFurtherMarginImprovementasRecentOutsizedMarginPerformanceWeakens…

-20%

-15%

-10%

-5%

0%

5%

10%

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

15%

EXPDAirfreightNetRevenueMarginsvs.AirfreightPricing

(annualch.;DrewryInverted)

DrewryEast-WestAirfreightPriceIndex(Inverted)

EXPDAirfreightNetRevenueMargin(rhs,bps)

Preliminarilymodelsimilar

marginimprovementin3Q18

Recentmarginoutperformanceweakens

asstrongairfreightpricingresultedinbelowexpectedmarginoutcome...

Relationshipnotperfect,butEXPDairfreghtmarginstendtobenefitwhenmarketpricingdeclines

800

600

400

200

0

(200)

(400)

(600)

Source:Drewry;CompanyReports;BarclaysResearch

Incomestatement($mn)

Revenue

2017A

6,921

2018E

7,961

2019E

8,452

2020E

8,846

CAGR

8.5%

Price(17-Aug-2018)

PriceTarget

USD74.01

USD78.00

EBITDA(adj)

750

836

911

967

8.9%

WhyOverweight?Expeditors’non-assetglobal

EBIT(adj)

700

781

856

911

9.2%

forwardingmodelgeneratessomeofthebestreturns

Pre-taxincome(adj)

719

805

875

929

8.9%

withinthetransportsectorandarelativelyattractive

Netincome(adj)

450

557

589

626

11.6%

valuationmakesforacompellingupsidecase.

EPS(adj)($)

2.48

3.14

3.45

3.80

15.3%

Dilutedshares(mn)

181.6

177.7

171.0

164.7

-3.2%

Upsidecase USD85.00

DPS($)

0.83

0.89

0.97

1.06

8.4%

EXPDupsidecaseisestimatedassumingan

improvingfreightrateenvironmentdrivesgross

Marginandreturndata Average revenuemarginspreadswiderby1%,relativetoour

EBITDA(adj)margin(%)

10.8

10.5

10.8

10.9

10.8

currentestimates.Underthisscenario,wea

earningsmultipleswouldexpandmodestly.

EBIT(adj)margin(%)

10.1

9.8

10.1

10.3

10.1

ssume

Pre-tax(adj)margin(%)

10.4

10.1

10.4

10.5

10.3

Downsidecase

USD65.00

Net(adj)margin(%)

6.5

7.0

7.0

7.1

6.9

EXPDdownsidecaseisestimatedassumingaweaker

ROIC(%)

22.9

27.9

31.1

34.2

29.0

freightrateenvironmentdrivesgrossrevenuemargin

ROA(%)

15.2

17.8

18.5

19.3

17.7

spreadstocompressby1%,relativetoourcurrent

ROE(%)

23.4

28.7

31.7

34.8

29.7

estimates.Underthisscenario,weassumeearnings

Balancesheetandcashflow($mn)

CAGR

multipleswouldnarrowmodestly.

Tangiblefixedassets

525

512

517

517

-0.5%

Upside/Downsidescenarios

Intangiblefixedassets

8

8

8

8

0.0%

Cashandequivalents

1,051

988

977

956

-3.1%

Totalassets

3,117

3,140

3,216

3,254

1.4%

Shortandlong-termdebt

0

0

0

0

N/A

Otherlong-termliabilities

N/A

N/A

N/A

N/A

N/A

Totalliabilities

1,123

1,244

1,396

1,481

9.7%

Netdebt/(funds)

-1,051

-988

-977

-956

N/A

Shareholders'equity

1,994

1,896

1,821

1,774

-3.8%

Changeinworkingcapital

-51

41

69

26

N/A

Cashflowfromoperations

489

654

715

709

13.2%

Capitalexpenditure

-11

-50

-60

-56

N/A

Freecashflow

478

604

655

653

10.9%

Valuationandleveragemetrics

Average

P/E(adj)(x)

29.9

23.6

21.5

19.5

23.6

EV/sales(x)

1.8

1.5

1.4

1.4

1.5

EV/EBITDA(adj)(x)

16.2

14.6

13.4

12.7

14.2

EquityFCFyield(%)

3.6

4.6

5.2

5.4

4.7

P/BV(x)

6.7

6.9

7.0

6.9

6.9

Dividendyield(%)

1.1

1.2

1.3

1.4

1.3

Totaldebt/capital(%)

0.0

0.0

0.0

0.0

0.0

Source:Companydata,BarclaysResearchNote:FYEndDec

WevalueExpeditorsInternationalofWashingtonInc.(EXPD)sharesat$78,whichisbasedonanaverageof13.5x(was13x)EV/EBITDAand22.5x(was22x)P/Emultipleonour2019EBITDAforecastof$911(was$943mm)andour2019EPSforecastof$3.45(was

$3.55).

4.5

EBITDA(adj)margin(%) 3.9

profitabilityrelativetopeerskeepsusUnderweight.

NorthAmericaTransportation

IndustryView:POSITIVE

HubGroupInc.(HUBG)

StockRating:UNDERWEIGHT

Incomestatement($mn)

2017A

2018E

2019E

2020E

CAGR

Price(17-Aug-2018)

USD51.00

Revenue

4,033

4,733

5,066

5,421

10.4%

PriceTarget

USD48.00

EBITDA(adj)

159

212

232

249

16.0%

WhyUnderweight?HubGroup’slargeintermodal

EBIT(adj)

97

133

147

158

17.6%

businessprovidesthecompanyfavorableexposureto

Pre-taxincome(adj)

91

124

139

148

17.4%

structuralexpansioninthecontinuedhighwaytorail

Netincome(adj)

60

93

104

111

22.7%

freightconversionmarket.However,lower

EPS(adj)($)

1.80

2.78

3.10

3.30

22.4%

Dilutedshares(mn)

33.3

33.5

33.6

33.6

0.2%

DPS($)

0.00

0.00

0.00

0.00

N/A

Marginandreturndata

Average

Upsidecase USD58.00

HUBGupsidecaseisestimatedassuminganimprovingfreightrateenvironmentdrivesgross

4.6 4.6 4.4

EBIT(adj)margin(%)

2.4

2.8

2.9

2.9

earningsmultipleswouldexpandmodestly.

Pre-tax(adj)margin(%)

2.3

2.6

2.7

2.7

2.6

revenuemarginspreadswiderby1%,relativetoourcurrentestimates.Underthisscenario,weassume

Net(adj)margin(%) 1.5

2.0

2.1 2.0 1.9 Downsidecase USD42.00

ROIC(%)

6.8

8.9

9.0

8.7

8.3

HUBGdownsidecaseisestimatedassumingaweaker

ROA(%)

4.0

5.3

5.4

5.3

5.0

freightrateenvironmentdrivesgrossrevenuemargin

ROE(%)

8.6

11.4

11.3

10.8

10.5

spreadstocompressby1%,relativetoourcurrent

Balancesheetandcashflow($mn)

CAGR

estimates.Underthisscenario,weassumeearningsmultipleswouldnarrowmodestly.

Tangiblefixedassets

562

718

803

892

16.7%

Intangiblefixedassets

423

420

420

420

-0.3%

Upside/Downsidescenarios

Cashandequivalents

29

25

32

61

29.1%

Totalassets

1,671

1,863

2,007

2,177

9.2%

Shortandlong-termdebt

303

315

315

335

3.5%

Otherlong-termliabilities

N/A

N/A

N/A

N/A

N/A

Totalliabilities

901

997

1,037

1,096

6.8%

Netdebt/(funds)

274

290

283

274

0.0%

Shareholders'equity

770

866

970

1,081

12.0%

Changeinworkingcapital

-72

24

-12

-12

N/A

Cashflowfromoperations

125

196

177

189

14.8%

Capitalexpenditure

-75

-209

-170

-180

N/A

Freecashflow

51

-13

7

9

-42.9%

Valuationandleveragemetrics

Average

P/E(adj)(x)

28.3

18.4

16.4

15.4

19.6

EV/sales(x)

0.5

0.4

0.4

0.4

0.4

EV/EBITDA(adj)(x)

12.5

9.4

8.6

8.0

9.6

EquityFCFyield(%)

3.0

-0.8

0.4

0.6

0.8

P/BV(x)

2.2

2.0

1.8

1.6

1.9

Dividendyield(%)

0.0

0.0

0.0

0.0

0.0

Totaldebt/capital(%)

28.2

26.7

24.5

23.7

25.8

Source:Companydata,BarclaysResearch

Note:FYEndDec

WevalueHubGroupInc.(HUBG)sharesat$48,whichisbasedonanaverageof8.0x(was9.0x)EV/EBITDAand15x(was17x)P/Emultiplesonour2019EBITDAforecastof$232

Revenue

15,381

17,498

18,554

19,564

8.3%

PriceTarget USD130.00

EBITDA(adj)

1,367

1,598

1,779

2,004

13.6%

WhyOverweight?XPOprovidesinvestorsanearly

EBIT(adj)

660

822

980

1,178

21.3%

entrypointinacompanywithmuchlargerambitions.

Pre-taxincome(adj)

425

679

834

1,060

35.6%

Robustorganicgrowthintruckbrokerage,lastmile

Netincome(adj)

249

448

553

715

42.2%

andcontractlogisticscombinewithanaggressive

Incomestatement($mn) 2017A 2018E 2019E 2020E CAGR Price(17-Aug-2018) USD101.71

EPS(adj)($)

1.94

3.29

3.95

5.10

37.9%

Dilutedshares(mn)

139.4

148.0

148.0

148.0

2.0%

DPS($)

0.00

0.00

0.00

0.00

N/A

Marginandreturndata

Average

EBITDA(adj)margin(%)

8.9

9.1

9.6

10.2

9.5

EBIT(adj)margin(%)

4.3

4.7

5.3

6.0

5.1

acquisitionstrategythathasthepotentialtodrivematerialvaluecreationforshareholders.

Upsidecase USD140.00

Pre-tax(adj)margin(%)

2.8

3.9

4.5

5.4

4.1

expandmodestly.

Net(adj)margin(%)

1.6

2.6

3.0

3.7

2.7

ROIC(%)

5.6

7.3

8.5

10.2

7.9

Downsidecase USD85.00

ROA(%)

2.0

3.5

4.2

5.3

3.7

XPO'sdownsidecaseassumesaweakerfreightrate

ROE(%)

7.1

10.2

10.9

12.3

10.1

environment,drivinggrossrevenuemarginspreadsto

compressby1%,relativetoourcurrentestimates.

Balancesheetandcashflow($mn)

CAGR

Underthisscenario,weassumeearningsmultiples

Tangiblefixedassets

N/A

N/A

N/A

N/A

N/A

wouldremainunchanged.

Intangiblefixedassets

5,999

5,846

5,846

5,846

-0.9%

Cashandequivalents

397

768

988

1,198

44.5%

Upside/Downsidescenarios

Totalassets

12,602

13,126

13,455

13,757

3.0%

Shortandlong-termdebt

4,521

4,041

3,441

2,641

-16.4%

Otherlong-termliabilities

N/A

N/A

N/A

N/A

N/A

Totalliabilities

8,592

8,362

8,056

7,550

-4.2%

Netdebt/(funds)

4,124

3,273

2,453

1,443

-29.5%

Shareholders'equity

4,010

4,764

5,399

6,207

15.7%

Changeinworkingcapital

-220

-212

-74

-74

N/A

Cashflowfromoperations

799

1,005

1,303

1,513

23.7%

Capitalexpenditure

-504

-518

-480

-500

N/A

Freecashflow

374

549

823

1,013

39.4%

Valuationandleveragemetrics

Average

P/E(adj)(x)

52.3

30.9

25.8

19.9

32.2

EV/sales(x)

1.2

1.0

0.9

0.8

1.0

EV/EBITDA(adj)(x)

14.0

11.5

9.8

8.2

10.9

EquityFCFyield(%)

2.6

3.6

5.5

6.7

4.6

P/BV(x)

3.5

3.2

2.8

2.4

3.0

Divid