Most Active Transport Stocks: UPS, UNP, NSC

PUBLISHED: Sep 21 2012 @ 13:35 | Comments (5) | More info about Ed Liston

Markets are looking in buoyant mood and poised to end a fruitful week on a positive note. However, the mood in transportation sector seems to be gloomy. The sector index is down and it is not surprising since recently industry leaders like FedEx (NYSE:FDX) and UPS (NYSE:UPS) chose to slash their forecasts.

Transportation sector is generally taken as indicator of overall economic health and FedEx, while announcing its forecast cut, blamed weak economy for fall in its core business of Express shipping. The company expects the repercussions of frail economy to last for the foreseeable future. So, while the general market is up, let’s have a look at the movers and shakers of transportation sector today.

United Parcel Service (NYSE:UPS): The stock is currently trading at $71.74, down $1.20 from its previous close of $72.61. The worrisome factor is that it is trading down with heavy volume. It has already traded 4 million shares, in comparison to its usual average trading volume of 3.61 million shares. Like its peer FedEx, UPS is also facing the consequences of weak US and global economy. It is also experiencing troubles on other fronts. Its acquisition of Dutch company TNT Express is yet to receive approval of EU regulators. The company has the daunting task of convincing the regulators that its $6.77 billion acquisition does not breach antitrust rules. In any case, the deal is likely to take a long time and is not expected to be closed until 2013. United Parcel Service also expressed its concerns about declining manufacturing in Asia, which will have direct impact on its volumes and profits. UPS was recently downgraded by Barclays Capital from Overweight to Equal Weight. The stock is trading at Price Earnings ratio of 18.10, in comparison to PE ratio of 13.17 shown by its peer FedEx, making UPS a relatively expensive stock.

Union Pacific Corporation (NYSE:UNP): The stock is trading marginally down at $120.52, about 0.36 percent lower than its previous close of $120.95. The stock has beta of 1.17 and it is trading at Price Earnings ratio of 15.60. By this account, Union Pacific stock is trading at premium to its peers but the company holds key position in its segment, justifying the premium commanded by its stock. This railroad company is mainly engaged in the business of providing freight transportation for agricultural products and allied commodities. The company is looking to release its third quarter earnings on October 18, 2012. Given the overall slump in transport sector, the company stock was recently downgraded by UBS AG. The stock is now rated Neutral, down from its earlier rating of Buy. Its price target has been set at $135, giving it a reasonable upside. The stock is a good buy if you are looking for moderate gains in a stable company. FBR Capital, on the other hand, seems to be more optimistic about the stock. The research firm initiated its coverage of the stock with ‘Outperform’ rating, giving it a higher price target of $150.

Norfolk Southern Corp. (NYSE:NSC): It is yet another major stock dragging transport sector down in current trading session. The stock is trading 0.71 percent down at $65.65. Like UPS, this stock has also accumulated high volume for its downward journey. The stock has traded 3.194 million shares so far, considerably higher than its average daily volume of 1.842 million. The stock saw its price target slashed by Jefferies. The company’s new target has been set at $75. The move comes in the wake of gloomy outlook provided by the company. Norfolk Southern recently cut its outlook for its fiscal third quarter. The company reported that lower fuel surcharge is likely to have negative impact on its earnings. Norfolk Southern expects to earn between $1.18 and $1.25 for the third quarter of the year. It had earned $1.59 per share in the corresponding quarter of 2011. It also expects its quarterly revenue to be lower than what it earned in 2011. The stock is trading at Price Earnings ratio of 11.26 and its beta is 1.14. The company’s fortune is strongly tied to coal transportation, which is not likely to show any improvement in the near future. While this forecast does not bide well for the stock, it is likely to stage a comeback. While I am not eager to build any new position in this company or in transport sector in general, but if you already have this stock in your portfolio, you may want to keep it in.

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