Pacer International (NASDAQ: PACR)

Pacer International (PACR) is a freight transportation and logistics company, providing intermodal and logistics services on a retail and wholesale basis. The Company’s Intermodal segment provides transportation intermediaries wholesale intermodal services. Its Logistics segment offers customers logistical services, including truck brokerage, warehousing and distribution, international freight forwarding and supply-chain management services units.

Founded in 1974, the Company is headquartered in two locations, Concord, California and Dublin, Ohio.

Source: Reuters.com, SEC Filings.

Financial Summary

Source: Reuters.com, SEC Filings.

Analyst Consensus

The mean of nine analysts polled by Thomson Reuters rate shares of PACR a “Hold.”

Analyst Recommendations and Revisions

Source: Reuters.com, SEC Filings.

Historical Surprises

Source: Reuters.com, SEC Filings.

Investment Highlights

Overview

The freight services industry has experienced declining revenue since the start of the global recession, with revenue declines registered year-over-year well into double-digits. Future revenue and profitability of the industry depends primarily on the state of the U.S. economy and the cost trend of diesel fuel. Trucking is especially vulnerable to high fuel costs, while the rails benefit from high diesel prices as the cost of transporting freight by road climbs much faster than the cost of rail that’s run on lower-cost coal.

U.S. economic growth remains an important factor affecting the Company; GDP growth translates to more freight shipped in an already mature industry. Economic growth, despite optimism to the contrary, is not expected to be subdued for many years. A global shift in production and consumer spending of the West is mostly likely in decline relative to Asia. The benefits of this historic shift in economic power of the West to the East are numerous to some U.S. industry.

Rails in particular should experience a reinvigoration as domestic industrial production expands as a direct result of a weaker U.S. dollar relative to its trading partners. A weaker U.S. dollar raises import prices and encourages domestic production and consumption of domestically-made goods. Many economists believe a weaker dollar will remain an ongoing policy of the Federal Reserve (Fed) for some time as partial response to record current account deficits and a systemic uncompetitive posture of many U.S.-produced goods in the global marketplace.

Moreover, recent feasibility studies reveal that intermodal rail shipping offers higher levels of profit margin and reduced revenue fluctuations over time for the transportation of produce by rail-instead of tractor trailer.

The Company, in particular, is positioned in the long term for a shift toward domestic industrial production and consumption of domestically-made goods. As an asset-light operator, the Company doesn’t take on the risk of taking on substantial long-term debt to finance the change in domestic production trends. Matching leasing obligations with demand in the short term will be a challenge; but in the longer term, the Company is afforded the choice of conducting business that earns a profitable spread without specific regard to long-term covenant obligations.

The Company’s prospects for more immediate and secular growth are heavily influenced by the cost of crude and the substitution shift away from the diesel-dependent road transportation system to a rail network run on domestically-mined coal. After reaching $147 per barrel of oil in late June of 2008, dropping to $35 per barrel in December, oil has since recovered to $80 per barrel. Crude prices are not expect to decline, but trend upward as the world wakes up to the implications of declining oil production coexisting with the growing need of crude consumption.

Hedge funds and institutions have already redeploying capital into industries and commodities which stand to benefit from higher crude prices. Warren Buffet’s purchase of Burlington Northern is the latest in high-profile deployments of available cash preparing for a more productive and ‘Buy America’ culture foisted upon the U.S. consumer due to the reality of stubbornly high energy costs.

Company News: Pacer International surprises analysts with Q3 profit, new contract

On November 4, the Company posted a profit of $0.6 million, or two cents per share, surprising analysts who expected a loss of one cent for the third quarter. Management and analysts remain cautious of the outlook.

The Company also announced that it extended and expanded its contract with Union Pacific, providing the rail giant access to the Company’s entire rail network and equipment. Under the agreement, the Company received $30 million payment from Union Pacific.

Industry analyst, John Larkin, of Stifel Nicolaus believes the contract with Union Pacific transitions the Company toward a more heavily weighted retail model, which many analysts (including Larkin) believe is more sustainable in the longer run.

The potential downside of the deal was voiced by Jon Lanenfeld, industry analyst for R.W. Baird, who said in a note to clients that the deal may force the Company to raise rates, therefore possibly losing market share to competitors. Lanenfield rates the Company ‘neutral,’ and believes that the Company will struggle to maintain profitability.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=pacr

PACR trades above its 13-day moving average. This bullish sign is less significant because the moving average is negatively trending.

The MACD for PACR currently indicates a bearish signal, but may turn bullish soon. The MACD is below the signal line, a 9-day moving average of the MACD but may cross and turn bullish. The MACD is, however, below the critical level of 0, which implies the past price action had been negative. Overall, the chart is neutral, but a break and close above $4.25 may attract technical buyers.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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