Swift Transportation Co: Citi Makes Questionable Trucker Pun, Discusses 'Tactical Outlook For Truck Carriers, OEMs And Suppliers'

“Don’t Get Run Over,” Citi titles a report about Swift Transportation Company SWFT published Friday morning. A questionable pun, definitely; but what does the firm mean by that?

The research note intends to provide a tactical outlook for truck carriers, OEMs and suppliers, focusing on Swift. The analysts reiterated a Buy rating on the stock, on the back of demand driven truckload with further upside. “After a robust year for trucking stock returns there has been mixed sentiment regarding the trajectory in 2015. Several capacity factors have been cited as cause for concern, but ultimately our [the analysts’] work suggests that pricing and the stocks anticipate and respond most directly to economic growth. With the economy on a growth trajectory history suggests that trucking stocks will work and are likely to outperform the S&P 500. “

The report also points out other factors to take into account:

1) Outperformance in equipment names is tougher with building builds

2) “It’s an Old Story, but Drivers Remain Key TL Capacity Constraint–Based on several factors of supply and demand, we believe the strong TL rate environment enjoyed by carriers in 2014 (+4%) will be repeated in 2015 (+4-5%) and, to a lesser extent, in 2016 (+3-4%). There are factors which will likely add marginally to capacity, but continued economic growth coupled with ongoing driver recruitment challenges–which remains the key hurdle to real capacity addition –and a looming electronic logging device mandate are likely to keep the market balanced and supportive of further rate increases.”

3) Rising heavy duty truck backlog for OEMs

The analysts conclude that the “in this collaborative truck deep dive across OEMs, Suppliers and Carriers, we examine supply/demand trends across sectors and see further upside potential for Truckload carriers based on a strong historical correlation to U.S. economic growth. Alternately, we hold a more cautious outlook for OEMs and Suppliers entering another year of above replacement trend Class 8 orders.”