airfreight, airlines, logistics, & maritime industry 2017 airfreight, airlines, logistics, &...

August 2017

Airfreight, Airlines, Logistics, & Maritime Industry

Jack Atkins

Managing Director

Stephens Inc.

(501) 377-2298

[email protected]

© 2017 Stephens Inc.

The analyst primarily responsible for the preparation of the content of this presentation certifies that (i) all views expressed in

this presentation accurately reflect the analyst’s personal views about the subject company and securities, and (ii) no part of

the analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views

expressed by the analyst in this presentation. See important disclosures and analyst certification on page 28 of this

presentation. This presentation constitutes a compendium report (covers six or more subject companies). As such, Stephens

Inc. chooses to provide specific disclosures for the companies mentioned by reference. To access current disclosures for the

companies in this presentation, clients should refer to https://stephens2.bluematrix.com/sellside/Disclosures.action or

contact your Stephens Inc. representative for additional information.

111 Center Street Little Rock, AR 72201 / 501-377-2000 / 800-647-9691 / stephens.com / Member NYSE, SIPC

Stephens Transportation Coverage List

2

Jack Atkins, AnalystAirfreight & Logistics

[email protected]

501-377-2298

Company Name Ticker Page #

Atlas Air Worldwide Holdings, Inc. AAWW 6

Air Transport Services Group, Inc. ATSG 7

Expeditors International of Washington, Inc. EXPD 8

FedEx Corporation FDX 9

United Parcel Service, Inc. Class B UPS 10

American Airlines Group, Inc. AAL 12

Delta Air Lines, Inc. DAL 13

Southwest Airlines Co. LUV 14

United Continental Holdings, Inc. UAL 15

C.H. Robinson Worldwide, Inc. CHRW 17

Echo Global Logistics, Inc ECHO 18

Forward Air Corporation FWRD 19

Landstar System, Inc. LSTR 20

World Fuel Services Corporation INT 21

XPO Logistics, Inc. XPO 22

Kirby Corporation KEX 24

Matson, Inc. MATX 25

Airfreight

Airlines

Logistics

Maritime

Brad Delco, Analyst Justin Long, AnalystTruckload & Less-Than-Truckload Railroads & Transportation Equipment

[email protected] [email protected]

501-377-8057 501-377-2036

Company Name Ticker Company Name Ticker

ArcBest Corporation ARCB American Railcar Industries, Inc. ARII

Celadon Group, Inc. CGI Canadian National Railway Company CNI

Covenant Transportation Group, Inc. Class A CVTI Canadian Pacific Railway Limited CP

Heartland Express, Inc. HTLD CSX Corporation CSX

J.B. Hunt Transport Services, Inc. JBHT Dana Incorporated DAN

Knight Transportation, Inc. KNX Fortress Transportation & Infrastructure FTAI

Marten Transport, Ltd. MRTN FreightCar America, Inc. RAIL

Old Dominion Freight Line, Inc. ODFL GATX Corporation GATX

Rush Enterprises, Inc. Class A RUSHA Genesee & Wyoming, Inc. GWR

Saia, Inc. SAIA Greenbrier Companies, Inc. GBX

Swift Transportation Company Class A SWFT Hub Group, Inc. HUBG

USA Truck, Inc. USAK Kansas City Southern KSU

Wabash National Corporation WNC NN, Inc. NNBR

Werner Enterprises, Inc. WERN Norfolk Southern Corporation NSC

YRC Worldwide Inc. YRCW Ryder System, Inc. R

Stoneridge, Inc. SRI

Trinity Industries, Inc. TRN

Union Pacific Corporation UNP

WABCO Holdings Inc. WBC

Wabtec Corp. WAB

Valuation Table: Airfreight, Airlines, Logistics, Maritime (Dollars in Millions, Except per Share)

Note: Equity value calculated from diluted shares outstanding using the treasury method. Note: Airlines (AAL, DAL, LUV, UAL) represent EV / NTM EBITDAR multiples. Note: Airline Enterprise value includes capitalized rent @ 7x operating rent Source: Stephens estimates and FactSet Research Systems

3

Price Price Equity Ent. Operating EPS P/E Multiple EV / NTM

Rating Target 8/24/17 Value Value 2017E 2018E 2017E 2018E EBITDA Multiple

Airfreight

United Parcel Service, Inc. Class B UPS EW $115.00 $113.35 $98,910 $113,542 $5.99 $6.45 18.9x 17.6x $11,036 10.3x

FedEx Corporation FDX OW 246.00 206.67 57,454 68,416 13.50 15.35 15.3 13.5 9,923 6.9

Expeditors International of Washington, Inc. EXPD EW 55.00 54.95 10,117 9,003 2.40 2.55 22.9 21.5 753 11.9

Atlas Air Worldwide Holdings, Inc. AAWW EW/V 64.00 63.25 1,606 3,481 4.90 --- 12.9 N/A --- N/A

Air Transport Services Group, Inc. ATSG OW 27.00 21.02 1,264 1,729 0.84 1.18 25.2 17.8 305 5.7

Mean 19.0x 17.6x --- 8.7x

Median 18.9x 17.7x --- 8.6x

Airlines

Delta Air Lines, Inc. DAL OW $66.00 $45.21 $25,998 $52,252 $5.39 $6.20 8.4x 7.3x $8,323 6.3x

American Airlines Group, Inc. AAL EW 56.00 42.92 37,214 45,501 5.11 6.15 8.4 7.0 9,330 4.9

Southwest Airlines Co. LUV OW 70.00 50.71 33,821 35,290 3.68 4.65 13.8 10.9 5,803 6.1

United Continental Holdings, Inc. UAL EW 80.00 61.48 21,563 34,618 7.70 8.90 8.0 6.9 7,298 4.7

Mean 9.6x 8.0x --- 5.5x

Median 8.4x 7.1x --- 5.5x

Logistics

C.H. Robinson Worldwide, Inc. CHRW EW $73.00 $66.87 $9,583 $10,651 $3.35 $3.65 20.0x 18.3x $910 11.7x

XPO Logistics, Inc. XPO EW 63.00 56.75 8,436 13,016 1.90 2.70 29.8 21.0 1,498 8.7

World Fuel Services Corporation INT EW 37.00 33.84 2,367 2,859 2.30 2.95 14.7 11.5 381 7.5

Landstar System, Inc. LSTR EW 88.00 81.80 3,448 3,293 3.58 4.15 22.8 19.7 309 10.7

Forward Air Corporation FWRD OW 61.00 50.36 1,529 1,540 2.32 2.60 21.7 19.4 160 9.6

Echo Global Logistics, Inc ECHO OW 22.00 13.45 392 582 0.62 1.00 21.7 13.5 66 8.8

Mean 21.8x 17.2x --- 9.5x

Median 21.7x 18.8x --- 9.2x

Maritime

Kirby Corporation KEX EW $66.00 $61.70 $3,329 $3,778 $2.00 $2.35 30.8x 26.2x $403 9.4x

Matson, Inc. MATX EW 23.00 23.81 1,027 1,792 1.60 1.90 14.9 12.5 306 5.9

Mean 22.8x 19.4x --- 7.6x

Median 22.8x 19.4x --- 7.6x

Stock Performance & Valuations

YTD Stock Performance

2017 Stock Performance Relative to the S&P

NTM P/E Valuation Multiples

24% 24%

12%

2%

-2%-5% -5%

-10%-13%

-15% -15%-17% -18%

-23%

-37%

-41%

-55%-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

AT

SG

XP

O

AA

WW

FD

X

FW

RD

EX

PD

LU

V

UP

S

LS

TR

AA

L

DA

L

KE

X

CH

RW

UA

L

INT

MA

TX

EC

HO

YT

D S

toc

k P

erf

orm

an

ce

Re

lati

ve

to

S&

P 5

00

Source: Stephens estimates and FactSet Research Systems 4

-2%

0 x

5x

10x

15x

20x

25x

30x

AAL AAWW ATSG CHRW DAL ECHO EXPD FDX FWRD INT KEX LSTR LUV MATX UAL UPS

Current NTM Multiple 5-Yr. Avg. NTM Multiple

Global Airfreight Industry Overview

Source: IATA, AAPA, Drewry, HKIA, Semiconductor Industry Association

Key Themes International Air Transport Association

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

FTK ATK

Association of Asia Pacific Airlines

Demand Improving. For much of the past five years (excluding 2014), global airfreight demand growth has been tepid, growing in the low-single digit range. That said, demand trends have improved in recent months and we expect the continued adoption of the e-commerce channel by consumers to provide a tailwind for the industry over the next several years.

• Capacity. Excluding 2014, global airfreight

capacity growth has outpaced global demand growth, largely due to the delivery of new passenger aircraft. While capacity growth has slowed in recent months, we believe it is too early to make a call that this is a change in fundamentals.

• Rates. With slowing capacity growth and strong

demand trends, industry spot market carrier rates have remained strong during YTD. We would expect spot market rates to remain strong as long as capacity remains in check.

50%

55%

60%

65%

70%

75%

(10%)

0%

10%

20%

30%

200820092010201120122013201420152016 YTD

FTK ATK Load Factor

Drewry Shanghai to Los Angeles Rate Hong Kong International Airport Cargo Data

Global Semiconductor Shipments

-60%

-40%

-20%

0%

20%

40%

$2.00

$3.00

$4.00

$5.00

$6.00

Price/Kilo Y/Y Change

-25%

-15%

-5%

5%

15%

25%

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Loaded Unloaded Total Y/Y % Change

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

Jan-

17

Mar

-17

May

-17

Global FTKs Global Semi Shipments

5

Atlas Air Worldwide Holdings (AAWW) Equal-Weight/Vol. Rated

$64 Price Target

(Dollars in Millions, Except per Share)

Stock Profile Key Points

One Year Price / Volume Chart

Source: Company reports, Stephens estimates and FactSet Research Systems

5-Year NTM P/E Chart

Annual Free Cash Flow Earnings Historically 2H Loaded

37%

50%

34%35%

26% 29%

44%

25%28%

63%

50%

66%

65%

74% 71%

56%

75%

72%

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2009 2010 2011 2012 2013 2014 2015 2016 2017E

$(700)

$(600)

$(500)

$(400)

$(300)

$(200)

$(100)

$-

$100

$200

$300

2009 2010 2011 2012 2013 2014 2015 2016

Highly Levered to Oversupplied Airfreight Market. A significant portion of AAWW’s revenue (~50%) is generated from its Charter business. This business is sensitive to global spot airfreight rates and can materially impact quarterly results.

Significant Seasonality Reduces EPS Visibility. Historically, AAWW generates a majority of its annual EPS in the 2H of the year due to the timing of peak season, which decreases the visibility of earnings.

Growth Dependent on Large Capital Outlays. Given the asset-intensity of AAWW’s business model, it is difficult for the Company to drive organic growth without deploying large amounts of capital on new aircraft.

66% Average

6

Free Cash Flow = Operating Cash – CapEx – Purchase Deposits for Aircraft and Flight Equipment

Ticker AAWW

Price (as of 8/24/17) 63.25$

Fully Diluted Shares Out (mil.) 25.4

52-Week High 67.75$

52-Week Low 34.81$

Market Cap (mil.) 1,606.3$

Net Debt 1,874.5

Enterprise Value 3,480.8$

Average Daily Volume 375,277

Short Interest (as % of Float) 11.5%

Debt/Cap 57.4%

Free Cash Flow per Share (4.42)$

Dividend Yield 0.0%

Book Value per Share 60.75$

Air Transport Services Group (ATSG) Overweight Rated $27 Price Target



One Year Price / Volume Chart


5-Year NTM P/E Chart

Annual Free Cash Flow Significant Growth Potential

Agreement With Amazon. ATSG announced an agreement with Amazon in which it will provide 20 767 freighter aircraft to Amazon on 5-7 year leases. We estimate that each aircraft could add ~$0.04 to annual EPS.

Multiple Growth Drivers. Outside additional aircraft placements, ATSG has other potential growth drivers in its recent acquisition of PEMCO and its joint venture in China, which is expected to gain regulatory approval in 2H17.

Additional Aircraft Demand Outside of Amazon. Aside from its agreement with Amazon, ATSG is seeing increased demand from customers for its 767F asset. The Company expects to deploy five 767F to customers in 2H17, with this feedstock already secured.

$(100)

$(50)

$-

$50

$100

$150

$200

2011 2012 2013 2014 2015 2016 2017E 2018E

7

30

40

50

60

70

80

90

$-

$50

$100

$150

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$350

2011 2012 2013 2014 2015 2016 2017E 2018E

Fle

et C

ou

nt

Ad

j. E

BIT

DA

(m

il.)

Adj. EBITDA Fleet Count

Ticker ATSG

Price (as of 8/24/17) 21.02$


52-Week High 25.75$

52-Week Low 12.94$


Net Debt 465.3




Debt/Cap 65.4%

Free Cash Flow per Share N/M

Dividend Yield 0.0%


Expeditors International (EXPD) Equal-Weight Rated

$55 Price Target




One Year Price / Volume Chart 5-Year NTM P/E Chart

High-Quality, Nimble Forwarder. EXPD is a global freight forwarder with a diverse service offering and geographic footprint, with leverage to the Transpacific lane. EXPD has $974 mil. of cash and no debt.

Strategic Initiatives. The Company is executing on a multi-year strategic plan aimed at driving double-digit operating income and EPS growth over the next several years.

Challenging Margin Comps. EXPD faces difficult y/y comparisons for much of 2017 after a strong 2015 and 2016. In 1H17, margin comparisons are difficult due to soft spot market carrier rates that declined significantly due to overcapacity in both the global airfreight and ocean freight markets.

Industry Leading Returns Difficult Y/Y Comparisons In 1H17

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012 2013 2014 2015 2016

ROIC ROE

15%

20%

25%

30%

35%

(15%)

(10%)

(5%)

0%

5%

10%

15%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Volume Net Rev Margin

15%

20%

25%

30%

35%

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Volume Net Rev Margin

Air

frei

ght

Oce

an F

reig

ht

8

Ticker EXPD

Price (as of 8/24/17) 54.95$


52-Week High 59.90$

52-Week Low 47.23$


Net Debt (1,114.9)


Average Daily Volume 1,127,924


Debt/Cap 0.0%

Free Cash Flow per Share 2.20$

Dividend Yield 1.5%


FedEx Corporation (FDX) Overweight Rated $246 Price Target





Express Operating Profit Improvement Investments Weighing on Ground Margins

Multiple EPS Growth Drivers. FDX completed its $1.6 bil. profit improvement initiative at Express in F2016. The Company now expects to generate $1.2 bil.-$1.5 bil. of profit improvement by FY20. We note this guidance includes the expected TNT synergies.

Capital Allocation. With $3.2 bil. of cash, FDX is well positioned to invest in its business and return cash to shareholders through its quarterly dividend and share repurchases.

Acquisition of TNT Express. The deal closed on May 25th and the Company expects the transaction to be immediately accretive to annual EPS. FDX expects the integration to take four years and expects to exit the integration with $750 mil. of synergies from the deal.

9

FY13 LTM

Total Package Volume 996,285 1,073,458

Total Operating Expense (mil.) 26,000$ 23,807$

Operating Expense per Package 26.10$ 22.18$

Fuel Expense (mil.) 4,130$ 2,043$

Operating Expense ex. Fuel (mil.) 21,870$ 21,764$

Per Package Operating Expense ex. Fuel 21.95$ 20.27$

Per Package Cost Savings 1.68$

Operating Profit Improvement ex. Fuel (mil.) 1,800.5$

11.5%

13.8%

15.6%

18.4% 18.5% 17.4%

16.7%

13.7% 12.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2009 2010 2011 2012 2013 2014 2015 2016 2017E Target

Targeting Mid-Teens Operating Margin

Ticker FDX

Price (as of 8/24/17) 206.67$


52-Week High 219.99$

52-Week Low 158.20$


Net Debt 10,962.0




Debt/Cap 48.2%


Dividend Yield 1.0%


United Parcel Service (UPS) Equal-Weight Rated

$115 Price Target





Annual EPS Growth Lags Peer Growth Expectations From 2017 Analyst Day

High-Quality Industrial Company. UPS boasts an integrated global delivery network that utilizes significant technology to improve efficiency. The Company also produces industry leading returns with a 2016 ROIC of 18.7% and returns a significant amount of capital to shareholders through dividends and share repurchases.

Slow Growth. Given the size, density and fixed cost nature of UPS’ business model, its earnings growth rate has lagged its closest peer over the past several years and we do not see a near-term catalyst to accelerate the growth rate.

Valuation Full. Despite a slow growth profile, UPS trades at a premium to both its 5-year average NTM P/E multiple and FDX.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2011 2012 2013 2014 2015 2016

UPS FDX

UPS: 5.7% CAGR FDX: 18.4% CAGR

10

$49.5

$53.1 $54.1 $55.4

$58.2 $58.4 $60.9

$64.3 $69.5

$72.2

$40

$45

$50

$55

$60

$65

$70

$75

2010 2011 2012 2013 2014 2015 2016 2017E 2018 2019

Revenue: 4% - 6% CAGR

$3.48

$4.35 $4.53 $4.57

$4.75

$5.43

$5.75 $5.95 $6.56

$7.20

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EPS: 5% - 10% CAGR

Ticker UPS

Price (as of 8/24/17) 113.35$


52-Week High 120.44$

52-Week Low 102.12$


Net Debt 14,632.5




Debt/Cap 93.2%


Dividend Yield 2.9%


Passenger Airline Industry Overview

Source: DOT data, Stephens estimates and FactSet Research Systems

Key Themes Industry PRASM Trend

Growing Capacity on Fewer Flights

Operating Margin in a Recession Scenario Operating Margin in a Oil Spike Scenario

Attractive NTM P/E Valuation Relative to Other Transportation Verticals

Investors Focused on PRASM Turning Positive. This key metric remains top of mind for investors, and the stocks have reacted to Company commentary on expectations for 2017 performance. All four of the airlines on our coverage list guided to positive 2Q unit revenue and we expect continued y/y improvement in PRASM in FY17.

Capacity Growth. Despite the low fuel price

environment, airlines have taken a disciplined approach to capacity growth, with a majority coming through up-gauging. That said, UAL’s increase to its capacity plans makes us cautious around the potential for a competitive response.

Attractive Valuation. Airline stocks trade at a

significant discount to other asset-heavy transportation companies, a gap we believe closes over the next 18-24 months and unit revenue trends improve.

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

$9.50

$10.00

$10.50

$11.00

$11.50

$12.00

$12.50

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

PRASM Y/Y % Change

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Flights ASM

23.1x 21.2x

19.2x 18.4x 18.1x

11.8x

7.8x 7.3x 7.3x

0 x

5x

10x

15x

20x

25x

TL IMC LTL Logistics Class 1 Rail LUV DAL AAL UAL

11

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

American Airlines Group (AAL) Equal-Weight Rated

$56 Price Target





Ongoing US Airways Integration. AAL is in the middle-innings of its integration, having captured all of the expected cost synergies and about half of the revenue synergies.

Network Operations Improving. Following the merger with US Airways, AAL has been investing heavily in its network, both aircraft and non-aircraft, to improve reliability. While progress has been made, there is still work to be done over the next couple of years.

Balance Sheet. AAL is taking advantage of low interest rates and using debt to finance its refleeting initiative, which is a different strategy than its peers. While leverage has declined due to better financial performance, the Company’s debt balance continues to increase.

Network Operating Metrics Improving Different Balance Sheet Strategy

68%

70%

72%

74%

76%

78%

80%

82%

95%

96%

97%

98%

99%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Completion Factor On-Time %

2x

3x

4x

5x

6x

7x

8x

9x

10x

11x

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2010 2011 2012 2013 2014 2015 2016

Total Debt Debt / LTM EBITDA

DAL’s On-Time % was 86%

12

Ticker AAL

Price (as of 8/24/17) 42.92$


52-Week High 54.48$

52-Week Low 33.90$


Net Debt 17,973.0




Debt/Cap (508.6%)


Dividend Yield 0.9%


Delta Air Lines (DAL) Overweight Rated $66 Price Target





Multi-Year EPS Growth Drivers. DAL expects $2.8 bil. of incremental, high-margin revenue over the next several years from its Other Revenue initiatives. In addition, a growing International presence is expected to yield additional investment income.

Variable Cost Model. In a fixed-cost industry, DAL boasts a highly variable cost model, with ~55% variable costs. A low union presence in its workforce and large number of unencumbered aircraft provide flexibility in the cost structure.

Attractive Valuation. DAL trades below industry peers, its 5-year average NTM P/E multiple and other high-quality industrial companies despite expectations for 15%+ EPS growth and several internal growth initiatives.

EPS Power From Other Revenue Initiatives Variable Cost Business Model

Incremental Revenue:

Credit Card 1,600$

Branded Fares 1,200

Total 2,800$

Incremental Margin 85%

Operating Income 2,380$

Taxes @ 35% 833

Net Income 1,547$

Diluted Shares 775

Potential EPS Impact 2.00$

13

Only 18% of workforce is unionized

- less work rules, better pay (industry leading

wages)

Provides network efficiency and flexibility

- operates oldest Mainline fleet in the industry

- lower maintenance expense than peers despite

older fleet

- flexibility to meet customer demand without

decreasing utilization

ATL is considered a "lower-cost" hub

- lower landing fees than other major cities

- capacity constraint limits competition in key

market- less weather delays allow for increased network

reliability

Labor

Unencumbered

Aircraft

Low-Cost Hub

Ticker DAL

Price (as of 8/24/17) 45.21$


52-Week High 55.75$

52-Week Low 35.90$


Net Debt 6,026.0




Debt/Cap (158.9%)

Free Cash Flow per Share 1,300.00$

Dividend Yield 2.7%


Southwest Airlines (LUV) Overweight Rated $70 Price Target





Differentiated Business Model. LUV operates a point-to-point network with a low-fare model and only operates one type of aircraft, the 737. This model reduces the fixed costs associated with a major hub and allows for a flexible flight schedule.

Multi-Year Growth Drivers. LUV renegotiated its credit card agreement in 3Q15 and has realized a revenue tailwind of ~$125 mil. per quarter. In addition, the Company is in the midst of modernizing its fleet and plans to launch a new domestic reservation system in 2017.

Investment Grade Balance Sheet. LUV is the only airline that boasts an investment grade rating from all three major credit agencies.

RASM Growth Outlook Improving Significant Operating Margin Expansion

1%

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17E

5.8%

21.1%

0%

5%

10%

15%

20%

25%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

14

3Q17 RASM Guidance of ~1% y/y

Ticker LUV

Price (as of 8/24/17) 50.71$


52-Week High 64.39$

52-Week Low 36.05$


Net Debt (57.0)




Debt/Cap 1228.8%

Free Cash Flow per Share 1,833.00$

Dividend Yield 1.0%


United Continental Holdings (UAL) Equal-Weight Rated

$80 Price Target





Network Operational Improvement. Following its merger with Continental, UAL’s network performance metrics have lagged peers, which has weighed on financial results. While network reliability is improving, there is still a large gap between UAL and industry leaders.

New Management Team in Place. UAL’s CEO Oscar Munoz has been busy the past several months reshaping his management team. Over the past year, UAL has added a new CFO, President and Chief Commercial Officer.

Balance Sheet Improving. UAL has significantly improved its financial position over the past several years and we believe could be upgraded to investment grade in the medium term.

3Q17 PRASM Guidance $4.8 bil. of Value From Strategic Initiatives

(7.4%) (6.7%)

(5.9%)

(1.5%)

0%

2.1%

(10%)

(5%)

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1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17E

15

$600

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$900 $300

$700

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Do

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-1% - +1% y/y

Ticker UAL

Price (as of 8/24/17) 61.48$


52-Week High 83.04$

52-Week Low 46.67$


Net Debt 8,449.5




Debt/Cap 508.9%


Dividend Yield 0.0%


Logistics Industry Overview

Source: Internet Truckstop, Armstrong and Associates, Cass Transportation Index, FRED data

Key Themes Dry Van Rates

3PL Market Share (bil.) Manufacturing ISM-PMI Data

Cass Freight Index Inventory Levels Remain Elevated

Flatbed Rates

$100

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Spot Market Demand. So far in 2017, the operating environment remains challenging with soft spot market demand. Our sense is the market is in supply/demand equilibrium with geographic pockets of strength.

Spot Rates Turn Positive. With fuel prices

moving higher and y/y comparisons easing, dry van spot market rates turned positive y/y in 3Q16. After starting soft, flatbed spot rates have shown recent strength with improving PMI data.

Net Revenue Margin. Across the board, brokers

took advantage of the soft carrier rates in 2015 and 1H16 to expand net revenue margins. While we expect y/y net revenue margin pressure in 1H17, we believe there is potential for near-term net revenue margin outperformance given soft spot market rates.

9% CAGR

Current: 1.38 5-Year Avg:1.32

$1.40

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2014 2015 2016 2017 5 Year Average

$1.40

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$2.60

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2014 2015 2016 2017 5 Year Average

C.H. Robinson Worldwide (CHRW) Equal-Weight Rated

$73 Price Target





Margins Beginning To Come Under Pressure Industry Leading Capital Returns

30%

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30%R

OE

RO

IC

ROIC ROE

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Facing Challenging Margin Comparisons. CHRW’s contractual business mix has led to y/y net revenue margin expansion in each of the past eight quarters. Margins in 2H15 approached historical levels, creating difficult y/y comparisons beginning in 2Q16.

Excellent “Rainy Day” Stock. CHRW is a diversified global logistics company with a highly variable cost model, which allowed the Company to report y/y EPS growth even during the 2008 recession. This model also generates a significant amount of cash flow.

Valuation Historically Attractive. The stock is trading slightly below its 5-year average NTM P/E multiple .

17

Ticker CHRW

Price (as of 8/24/17) 66.87$


52-Week High 81.16$

52-Week Low 63.41$


Net Debt 1,068.8




Debt/Cap 50.1%


Dividend Yield 2.7%


ECHO Global Logistics (ECHO) Overweight Rated $22 Price Target





Organic Truckload Volume Growth Opportunity For Net Operating Leverage

Continued Market Share Gains. Despite a sluggish spot market demand environment, ECHO has reported double-digit organic TL volume growth in nine consecutive quarters. We expect this trend to continue as the ELD mandate begins to tighten capacity.

Command Integration Complete. ECHO completed the IT integration of Command during 4Q16. Now that this is complete, the Company can begin extracting the $200 mil.-$300 mil. of revenue synergies from the deal.

Investment in Talent. ECHO’s investment in its sales force has contributed to its market share gains. We expect productivity and efficiency of the sales force to improve with tenure.

(5%)

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30%

35%

40%

1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17

CHRW ECHO

18

17.5%

19.7% 20.2%

18.3%

16.3%

20.0%

21.9%

19.0% 17.8%

21.1%

19.4%

11.0%

7.4%

11.9%

0%

5%

10%

15%

20%

25%

1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17

Ticker ECHO

Price (as of 8/24/17) 13.45$


52-Week High 28.90$

52-Week Low 13.00$

Market Cap (mil.) 392.5$

Net Debt 189.1

Enterprise Value 581.6$



Debt/Cap 36.3%


Dividend Yield 0.0%


Forward Air Corporation (FWRD) Overweight Rated $61 Price Target





Core Linehaul Pricing Trend Potential M&A to Expand Footprint

Dominant Market Position. Following its acquisition of Towne (FWRD’s largest competitor), we estimate that FWRD has ~45% market share of its core Expedited LTL market with superior geographic density to its competitors.

Opportunity for Meaningful Pricing Power. We expect continued core linehaul yield improvement in FY17 as FWRD benefits from increased fuel surcharge revenue and the elimination of a notorious low-cost provider from the market.

Supplementing Organic Growth With M&A. FWRD has utilized its balance sheet to drive EPS growth in recent years, a trend we expect to continue in FY17.

(0.1%)

4.0% 4.2% 4.4%

1.3%

(1.6%)

(3.5%)

(0.3%)

2.7%

3.5% 3.7%

(1.7%) (2.0%)

(3.0%) (4%)

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1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17

19

Ticker FWRD

Price (as of 8/24/17) 50.36$


52-Week High 56.52$

52-Week Low 40.07$


Net Debt 11.4




Debt/Cap 4.0%


Dividend Yield 1.2%


Landstar Systems, Inc. (LSTR) Equal-Weight Rated

$88 Price Target





End Market Mix Solid Return and Cash Flow Profile

Significant Leverage to Industrial End Markets. LSTR’s flatbed business (~38% of revenue) exposes the Company to changes (and current softness) in the domestic industrial economy.

Differentiated Business Model. LSTR operates an agent based network that utilizes both in-house owner operators and 3rd party carriers. This model has leverage (both positive and negative) to fluctuations in spot market carrier rates.

Balance Sheet/Cash Flow/ Capital Returns. The Company has a solid balance sheet with net cash of $107.2 mil. LSTR’s business model generates a significant amount of free cash flow, which the Company uses to pay its quarterly dividend and repurchase shares.

As % of Revenue Y/Y Revenue

End Market 1Q17 1Q16 Growth

Consumer Durables 20.5% 21.5%

Machinery 14.4% 15.3%

Automotive 9.7% 8.7%

Building Products 8.6% 8.6%

Metals 6.7% 6.7%

AA&E, Hazmat 7.5% 8.8%

Foodstuffs 5.5% 5.2%

Energy 2.9% 3.1%

Other 24.2% 22.3%

20%

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28%

30%

32%

34%

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40%

$-

$50

$100

$150

$200

$250

2008 2009 2010 2011 2012 2013 2014 2015 2016

Free Cash Flow ROIC

20

Ticker LSTR

Price (as of 8/24/17) 81.80$


52-Week High 90.80$

52-Week Low 65.05$


Net Debt (154.3)




Debt/Cap 16.3%


Dividend Yield 0.5%


World Fuel Services Corp. (INT) Equal-Weight Rated

$37 Price Target





Recent M&A Transactions Volume Growth Not Equating to EPS Growth

Tepid Organic EPS Growth. From 2010-2015, INT’s EPS CAGR was ~4%. That said, after adjusting for the acquisitions made during this time, we believe the organic EPS CAGR was actually -2%.

Challenging Marine Market Conditions. The lack of price volatility and low commodity prices are weighing on results in INT’s core Marine business. In addition, the Company has seen limited demand for its hedging services.

M&A Pipeline. We expect INT to remain active with its M&A growth strategy. In our opinion, we believe the Land business or Aviation business provide the most attractive opportunity given INT’s relatively small market position.

(25%)

(20%)

(15%)

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(5%)

0%

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2011 2012 2013 2014 2015 2016

Y/Y Volume Growth Y/Y EPS Growth

21

Date Target Purchase Price (mil.)

Dec-10 Nordic Camp Supply $69

Jan-11 Ascent Aviation Group $42

Jun-01 Yacht Fuel Services $3

Dec-12 Multi Service Corp $137

Jan-14 Watson Petroleum $192

Jul-14 Colt International $63

Oct-15 Pester Marketing $70

Oct-15 Aircraft Fueling Locations $10

Feb-16 Aircraft Fueling Locations $260

Jun-16 PAPCO

Jun-16 APP Inc.

Ticker INT

Price (as of 8/24/17) 33.84$


52-Week High 47.49$

52-Week Low 32.28$


Net Debt 492.2




Debt/Cap 34.9%


Dividend Yield 0.7%


XPO Logistics (XPO) Equal-Weight Rated

$63 Price Target




One Year Price / Volume Chart Recent Events Timeline

FCF Profile Improving NTM EV/EBITDA Multiples

Integration Risk. We believe there is significant risk with XPO’s roll-up strategy and question the level of integration between the businesses. In addition, the Company is attempting to integrate the two largest acquisitions in its history at the same time.

Significant Industrial Exposure. XPO’s acquisition of Con-way and Norbert significantly increased the Company’s exposure to both the domestic and European industrial economies. These two acquisitions also increased the cyclicality and asset-intensity of XPO’s business.

Balance Sheet. XPO has used a mixture of debt and equity to fund its growth strategy. As a result, the Company has net debt of $4.49 bil., which is 3.3x levered on its FY17 EBITDA guide.

4.6x

6.9x 7.1x

9.0x 9.0x 9.1x

10.0x

0 x

2x

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Airlines TL LTL IMC Logistics XPO Rail

22

(40%)

(30%)

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$(200)

$(100)

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2015 2016 2017E 2018E

Adj. Free Cash Flow As a % of Adj. EBITDA

Date Event Purchase Price (mil.) Category

Jul-14 New Breed Logistics $615 Acquisition

Jul-14 Atlantic Central Logistics $37 Acquisition

Aug-14 Senior Note Offering $500 Debt Raise

Sep-14 Equity Private Placement $700 Equity Raise

Feb-15 Senior Note Offering $400 Debt Raise

Feb-15 UX Specialized Logistics $59 Acquisition

Apr-15 Norbert Dentressangle SA $3,500 Acquisition

May-15 Bridge Terminal Transport $100 Acquisition

Jun-15 Equity Private Placement $1,260 Equity Raise

Jun-15 Senior Note Offering $2,000 Debt Raise

Sep-15 Con-way $3,020 Acquisition

Jul-17 Forward Equity Offering $765 Equity Raise

Ticker XPO

Price (as of 8/24/17) 56.75$


52-Week High 65.44$

52-Week Low 31.68$


Net Debt 4,579.9




Debt/Cap 60.0%


Dividend Yield 0.0%


Maritime Industry Overview

Source: Drewry, UHERO, Port of Long Beach, Port of Oakland, Port of Los Angeles, FactSet Research Systems, FRED data

Key Themes Transpacific Eastbound Container Rate

West Coast Port Inbound Container Volume Hawaii Construction Data

Chemical Capacity Utilization Rail Chemical and Oil Volume

Asia-to-Europe Container Rate

Prefer Niche Providers With Competitive Advantages. Amid a challenging ocean freight and domestic barging operating environment, we prefer high-quality, market leaders.

Overcapacity in Non Jones Act Lanes. The

global ocean freight market, excluding Jones Act lanes, is in a state of structural overcapacity with sluggish demand trends.

Rates Pressure Easing. While overcapacity has

weighed on global ocean freight spot market carrier rates, especially in the Transpacific Eastbound lane and the Asia-to-Europe trade lane, 1Q rates showed further stability.

Chemical Demand Remains Robust. Due to low

domestic natural gas prices, chemical demand and utilization remains high. In addition, we are in the early stages of a planned $100 bil. domestic petrochemical plant buildout.

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EUs)

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Weekly

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ments

Petroleum & Petroleum Products Chemicals

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% o

f Tota

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apacity U

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23

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Private Building Permits % Residential Permits

Kirby Corporation (KEX) Equal-Weight Rated

$66 Price Target





Inland Marine Fundamentals Efficient Capital Structure

Core Market Stabilization. We believe fundamentals in the core Inland Marine market have stabilized. Utilization is in the low 80% range and contract pricing was flat sequentially. The number of crude barges being returned has flattened, potentially signaling a bottom in that end market.

Capital Allocation. KEX has been aggressive repurchasing shares, which the Company views as the best use of its cash. That said, we expect KEX to remain opportunistic should an M&A option materialize.

Domestic Petrochem Build. Given its market position and customer base, KEX is positioned to capture its share of the expected petrochem market share growth in 2017-2019.

(15%)

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80%

82%

84%

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96%

1Q

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Utilization Y/Y Contract Pricing

24

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$-

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Capitalization Debt/Cap

Ticker KEX

Price (as of 8/24/17) 61.70$


52-Week High 74.50$

52-Week Low 50.80$


Net Debt 448.8




Debt/Cap 21.5%


Dividend Yield 0.0%


Matson, Inc. (MATX) Equal-Weight Rated

$23 Price Target





Potential Capacity Growth In Hawaii EPS Scenario Analysis From New Competition

Increased Competition In Hawaii. A third competitor, TOTE, recently announced plans to build four new Jones Act container ships to enter the Hawaii market beginning in 2020. In addition, Pasha announced plans for 2 new ships, which could increase capacity by 41.8% in 2020.

Platform for Growth in Alaska. MATX expect sits Alaska business to be a driver of EPS and cash flow growth over the next several years. The Company guided to $0.45 of EPS accretion and ~$1.05 per share of cash flow.

New Competition. A competitor recently announced competing service in the Guam market. At the end of FY16, the competitor had ~8% market share.

% Revenue Decline

5.0% 7.5% 10.0% 12.5% 15.0%

80% $ 0.07 $ 0.11 $ 0.15 $ 0.18 $ 0.22

85% $ 0.08 $ 0.12 $ 0.16 $ 0.19 $ 0.23

90% $ 0.08 $ 0.12 $ 0.16 $ 0.21 $ 0.25

95% $ 0.09 $ 0.13 $ 0.17 $ 0.22 $ 0.26

100% $ 0.09 $ 0.14 $ 0.18 $ 0.23 $ 0.27 De

cre

me

nta

l Mar

gin

China

% Revenue Decline

2.5% 5.0% 7.5% 10.0% 12.5%

80% $ 0.07 $ 0.14 $ 0.21 $ 0.28 $ 0.35

85% $ 0.07 $ 0.15 $ 0.22 $ 0.30 $ 0.37

90% $ 0.08 $ 0.16 $ 0.24 $ 0.32 $ 0.39

95% $ 0.08 $ 0.17 $ 0.25 $ 0.33 $ 0.42

100% $ 0.09 $ 0.18 $ 0.26 $ 0.35 $ 0.44 De

cre

me

nta

l Mar

gin

Guam

25

Ticker MATX

Price (as of 8/24/17) 23.81$


52-Week High 43.00$

52-Week Low 21.63$


Net Debt 765.0




Debt/Cap 61.8%


Dividend Yield 3.4%


# of Vessels Route TEU Capacity

6 ships Hawaii Turnaround 12,576

5 ships Hawaii/Guam/China 11,365

# of Vessels Route TEU Capacity

4 ships Hawaii Turnaround 8,400

Total TEUs 32,341

# of Vessels Operator TEU Capacity

9 MATX 25,000

4 Pasha 6,450

4 TOTE 14,400

Total TEUs 45,850

Increase In Capacity 41.8%

Current Pasha Deployment

Hawaii Capacity In 2021

Current MATX Hawaii Deployment

Estimate Comparison: Stephens vs. the Street

Source: Stephens estimates and FactSet Research Systems Note: FDX fiscal year end is 5/31 Note: Estimates reflect operating EPS for AAWW, ATSG, AAL, DAL, LUV, UAL, ECHO, FWRD, INT and XPO.

26

Short Interest as a % Of Float

14.8% 14.0% 13.8% 11.1% 11.0% 7.6% 6.4% 4.5% 3.2%

XPO KEX CHRW ECHO AAWW AAL EXPD UAL LSTR

3.1% 2.5% 2.4% 2.0% 1.8% 1.5% 1.3% 1.2%

MATX INT DAL ATSG FDX FWRD UPS LUV

3Q17 Estimate FY17 Estimate FY18 Estimate

Stephens Street Diff. Stephens Street Diff. Stephens Street Diff.

Airfreight

AAWW 1.15$ 1.17$ (0.01)$ 4.90$ 4.84$ 0.05$ N/A 5.29$ N/A

ATSG 0.19$ 0.21$ (0.02)$ 0.84$ 0.87$ (0.04)$ 1.18$ 1.13$ 0.04$

EXPD 0.63$ 0.61$ 0.02$ 2.40$ 2.32$ 0.08$ 2.55$ 2.54$ 0.01$

FDX 3.20$ 3.17$ 0.03$ 13.50$ 13.57$ (0.07)$ 15.35$ 15.48$ (0.13)$

UPS 1.44$ 1.45$ (0.01)$ 5.99$ 6.01$ (0.02)$ 6.45$ 6.48$ (0.03)$

Airlines

AAL 1.63$ 1.63$ 0.00$ 5.11$ 5.10$ 0.00$ 6.15$ 5.71$ 0.45$

DAL 1.81$ 1.79$ 0.02$ 5.39$ 5.44$ (0.05)$ 6.20$ 6.07$ 0.13$

LUV 0.97$ 1.00$ (0.03)$ 3.68$ 3.79$ (0.11)$ 4.65$ 4.70$ (0.05)$

UAL 2.94$ 3.00$ (0.05)$ 7.70$ 7.78$ (0.09)$ 8.90$ 8.71$ 0.19$

Logistics

CHRW 0.84$ 0.83$ 0.02$ 3.35$ 3.28$ 0.07$ 3.65$ 3.56$ 0.09$

ECHO 0.19$ 0.20$ (0.01)$ 0.62$ 0.59$ 0.03$ 1.00$ 0.88$ 0.12$

FWRD 0.58$ 0.58$ (0.00)$ 2.32$ 2.32$ (0.00)$ 2.60$ 2.60$ (0.00)$

INT 0.62$ 0.62$ 0.00$ 2.30$ 2.28$ 0.01$ 2.95$ 2.85$ 0.10$

LSTR 0.92$ 0.92$ 0.00$ 3.58$ 3.56$ 0.03$ 4.15$ 4.02$ 0.13$

XPO 0.59$ 0.59$ 0.00$ 1.90$ 1.90$ 0.00$ 2.70$ 2.83$ (0.14)$

Maritime

KEX 0.50$ 0.49$ 0.02$ 2.00$ 1.99$ 0.01$ 2.35$ 2.60$ (0.24)$

MATX 0.63$ 0.62$ 0.01$ 1.60$ 1.68$ (0.08)$ 1.90$ 1.86$ 0.04$

Source: Stephens estimates and FactSet Research Systems

Pricing as of 8/24/17

Other Companies Mentioned

27

Amazon.com, Inc. AMZN 952.45$ American Railcar Industries, Inc. ARII 35.61$

ArcBest Corporation ARCB 25.25$ Canadian National Railway Company CNI 79.53$

Celadon Group, Inc. CGI 4.35$ Canadian Pacific Railway Limited CP 152.38$

Covenant Transportation Group, Inc. Class A CVTI 21.25$ CSX Corporation CSX 48.38$

Heartland Express, Inc. HTLD 20.55$ Dana Incorporated DAN 22.80$

J.B. Hunt Transport Services, Inc. JBHT 96.56$ Fortress Transportation & Infrasturcture FTAI 17.16$

Knight Transportation, Inc. KNX 36.75$ FreightCar America, Inc. RAIL 16.88$

Marten Transport, Ltd. MRTN 15.70$ GATX Corporation GATX 60.26$

Old Dominion Freight Line, Inc. ODFL 93.59$ Genesee & Wyoming, Inc. GWR 65.90$

Rush Enterprises, Inc. Class A RUSHA 39.37$ Greenbrier Companies, Inc. GBX 43.50$

Saia, Inc. SAIA 51.35$ Hub Group, Inc. HUBG 37.05$

Swift Transportation Company Class A SWFT 26.31$ Kansas City Southern KSU 104.58$

USA Truck, Inc. USAK 9.67$ NN, Inc. NNBR 25.30$

Wabash National Corporation WNC 20.12$ Norfolk Southern Corporation NSC 117.74$

Werner Enterprises, Inc. WERN 31.00$ Ryder System, Inc. R 73.02$

YRC Worldwide Inc. YRCW 11.56$ Stoneridge, Inc. SRI 16.01$

Trinity Industries, Inc. TRN 28.73$

Union Pacific Corporation UNP 104.57$

WABCO Holdings Inc. WBC 138.69$

Wabtec Corp. WAB 70.15$

Other Companies Mentioned:

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