FedEx and UPS headline Credit Suisse's list of top transportation stocks
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Credit Suisse started off coverage on the transportation and logistics sector with a broadly positive view.
The firm pointed to the steep discounts with transports to the broader market and strong fundamentals.
"We see many transportation companies as having strong fundamentals to support their valuations, with less dependence on upbeat narratives relative to other areas of the market," wrote analyst Ariel Rosa. "We believe current valuations present many attractive opportunities for investors with a long-term horizon," added Rosa.
Credit Suisse reiterated an Outperform rating FedEx (NYSE:FDX). Even though the shipper faces operational uncertainties, Rosa and team view its current valuation as too cheap given its integral role in global logistics. Potential upside to consensus EPS is seen as FDX shifts its focus to revenue quality and nears the completion of its integration of TNT Express, which is expected to boost margins.
Credit Suisse raised its price target on FedEx (FDX) to $314.
Meanwhile, UPS (UPS) is said to be sitting at an attractive entry point after dropping 22% from its high. UPS (UPS) is called a "best-in-class" business with a high dividend yield and superior margins, even with some concerns around its exposure to Amazon.
"While we harbor some concerns about its exposure to its largest customer Amazon, we generally believe this risk is overstated and largely priced in... We believe UPS's discount to the broader market under-appreciates the strength of its core business and the difficulty of replicating its network in scale and service."
Credit Suisse trimmed its price target on Outperform-rated UPS (UPS) to $225 from $226.
Looking across the sector, Credit Suisse thinks the market is underappreciating the long-term volume upside. Higher commodity prices and the nearshoring of manufacturing activity are seen driving upside.
The firm initiated 11 transportation stocks at Outperform - Union Pacific (UNP), CSX (CSX), Norfolk Southern (NSC), (KNX), Schneider Transportation (SNDR), Werner Enterprises (WERN), Saia (SAIA), XPO Logistics (XPO), TFI International (TFII), ArcBest (ARCB) and GXO Logistics (GXO).
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