Citi Initiates Research Coverage on Transportation and Logistics

Investing.com — Citi announced on Tuesday that it has commenced research coverage on 19 companies within the Transportation and Logistics industry, noting the sector's recent challenges while identifying potential upsides for investors.

The industry has faced a significant downturn, impacted by a supply-demand imbalance that has resulted in lower freight rates, negatively affecting the margins and earnings of transportation firms.

As a result, the Transports Index has underperformed relative to the S&P 500, experiencing a year-to-date decrease of 0.5%, compared to the S&P's 20.6% gain.

Analysts noted, "In our view, this weakness presents an opportunity to buy quality companies at reasonable prices with significant earnings upside potential as the cycle turns."

They added, "Against this backdrop of underperformance, we believe select Transportation and Logistics stocks are well-positioned to deliver strong relative outperformance in the year ahead."

Citi's analysis indicates that the cyclical downturn in transports may be approaching an end, with current low rates and margins setting the stage for strong earnings growth forecasts for 2025 and 2026 as the market begins to recover.

The firm's optimistic outlook is bolstered by the belief that many companies in their coverage boast management teams recognized for disciplined capital allocation, along with the essential nature of transportation services in the North American economy, which mitigates the risk of disruption or replacement.

Citi analysts also observed, "In our view, investors should be positioned for a cyclical recovery, with attractive opportunities in companies that are leveraged to realize outsized benefits as freight conditions tighten."

The analysts highlighted JB Hunt Transport Services Inc (NASDAQ:JBHT), Saia (NASDAQ:SAIA), CSX Corporation (NASDAQ:CSX), and United Parcel Service (NYSE:UPS) as their top picks in the sector.

Other companies included in Citi’s new coverage are Norfolk Southern Corporation (NYSE:NSC), Canadian Pacific (NYSE:CP), Kansas City, FedEx Corp (NYSE:FDX), XPO Inc (NYSE:XPO), TFI International (NYSE:TFII), and Werner Enterprises (NASDAQ:WERN), with Werner Enterprises being the only stock rated as Sell.