REAL CLIENT MANAGED PORTFOLIO
TO:
FROM:
SUBJECT:
DATE:
Real Client Managed Portfolio, Spring 2015
Michael Haberkorn, Terry Kwan, Devopama Pant, Yunlu Liu
Con-way Inc. Recommendation
16 April 2015
RECOMMENDATION: ADD TO WATCH LIST
Macroeconomic Outlook and Industry Overview
Con-way Inc.’s performance is highly correlated with the strength of the US economy. The U.S. economy
has maintained steady growth in the last few years with the steady growth projected to continue over the
next few years. The truck transportation industry is expected to grow revenue at a CAGR of 5% through
2019. There are five key industry drivers for the truck transportation industry: industrial production index,
total trade value, per capita disposable income, price of oil, and government funding of highways. Each of
the key drivers are forecasted to grow 2% to 7% through 2019.
The U.S. trucking industry is highly competitive. There is a high threat of new entrants due to low capital
and limited experience required to enter the industry. The bargaining power of buyers is low due to
undifferentiated services and low switching costs. The bargaining power of suppliers is medium due to
the relatively few numbers of buys compared to sellers. And the threat of substitutes is high due to many
alternate modes of transportation.
Company Overview
Con-way Inc. is the 3rd largest transportation and logistics company in America with a $5.8 billion
portfolio of transportation solutions delivered by 30,000 employees through three business units. Conways three business units are Con-Way freight, Menlo logistics, and Con-way truckload. Con-way freight
generates 61% of revenue, Menlo logistics generates 29% of revenue, and Con-way truckload generates
10% of revenue.
Valuation
DCF valuation gave us an intrinsic value of $42.49, using a discount rate of 10.61% and a terminal
growth rate of 3%. Our comparable valuation gave us a value of $64.07 per share, using EV/EBITDA
LTM, EV/EBIT LTM, Price/Diluted EPS, Price/FWD PEG, EV/FWD TTL REV, and EV/FWD
EBITDA. The technical analysis indicated a sell signal with the current stock price below the 20 and 200
day moving average.
Recommendation
We recommend adding Con-way Inc. to the watch list. The cyclical nature of the stock and industry,
combined with disparity between our valuation models, and a sell signal from the technical analysis do
not indicate Con-way as an acceptable risk/reward purchase at this time.