The Canadian trucking industry is facing a “bumpy” 2016 like a weak economy and an excessive amount of capacity weigh on freight rates, according to a brand new analysis from RBC Capital Markets.
In response, the bank recommends investing in companies with “low operating costs, strong balance sheets and prudent management teams,” that are best positioned to match capacity to demand and make opportunistic acquisitions.
RBC analyst Walter Spracklin downgraded Montreal-based TransForce Inc. to sector perform from outperform and lowered his price target to $22 from $31, but said the company remains his best choice in the trucking space.
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“Our rating reduction comes as a direct result macro environment concerns driven by weak demand, excess capacity and challenging pricing in the trucking sector,” Spracklin wrote in a note to clients.
However, he explained TransForce’s recent sale of its Waste Management business for $800 million makes the opportunity to “opportunistically pursue acquisitions to further bolster its positioning when markets improve.”
“On a family member basis, we love to (TransForce’s) positioning, both from a competitive standpoint, but also when it comes to its financial flexibility,” Spracklin wrote.
The trucking market is facing many of the same difficulties as railroads, that are also coping with shrinking freight volumes and pricing pressure. However, trucking has the additional challenge of excess capacity, that has remained at elevated levels because of low fuel prices.
