Rob Black's Transport Stock Report

Includes: BNI, CSX, DDAIF, F, GM, NSC, TM, UPS
by: Rob Black

Expect solid upside reports from the U.S. rails and more in-line reports from the Canadian rails. Analysts believe continued strong yield growth, accelerated volume growth and improving operating efficiency will again drive strong upside earnings reports for the group.

Among the Class I rails, analysts see the most potential upside for CSX Corp. (NYSE:CSX) and Norfolk Southern (NYSE:NSC) followed by Burlington Northern (BNI). CSX will likely benefit from continued pricing gains, strong margin improvement and better than anticipated volume growth. BNI and NSC will benefit from a best in class mix of volume and yield growth, as well as improved operating and cost metrics for NSC.

The auto makers' cost of incentives, including rebates as well as interest-rate offers and leasing deals, amounted in May to $3,668 per vehicle for Chrysler (DCX), $3,209 for Ford Motor (NYSE:F), $2,761 for General Motors (NYSE:GM) and $886 for Toyota Motor (NYSE:TM).

General Motors shares traded down 6.7% Tuesday (vs. the S&P 500 down 0.9%) after the company held a sales and marketing update via conference call for the investment and media communities. The two key takeaways of the call were: 1) unit volume is the main challenge for the company right now with: a) the industry under pressure from interest rates and gas prices; b) the secular shift away from traditional SUVs accelerating; and c) the company continuing to moderate its reliance on fleet sales, particularly into the daily rental markets; although 2) this is being offset to a degree by higher average transaction prices (ATPs), on the strength of new product launches and lower incentive spending.

United Parcel Service (NYSE:UPS) and the U.S. Postal Service reached agreement on a deal that will put mail on planes of the package-delivery company and could improve the post office's reliability. The arrangement buries the hatchet between two longtime enemies that have battled for decades in the parcel business. UPS frequently has accused the Postal Service of using its monopoly on first-class mail deliveries to prop up its package operations, while postal officials long regarded UPS as a political bully.

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