Con-way Inc (CNW), FedEx Corporation (FDX): This Freight & Logistics Business Could Deliver a Lot of Value

Con-way Inc (NYSE:CNW) has experienced pretty good returns since the beginning of the year, up nearly 40% to $38.90 per share. All famous investors, including Joel Greenblatt, Jim Simons, and Steven Cohen, have either reduced or exited their positions in the company. However, Barron’s is still bullish on Con-way Inc (NYSE:CNW), believing that it could surge at least 18% to $46 per share. Let’s take a closer look to determine whether or not we should invest in Con-way Inc (NYSE:CNW) at its current trading price.

Con-way’s snapshot

Con-way Inc (NYSE:CNW), incorporated in 1958, is the provider of transportation, logistics and supply-chain management services, operating in four business segments: Freight, Logistics, Truckload and Other. Most of its operating income, $143.9 million, or 63% of the total income, was generated from the Freight segment, while the Logistics and Truckload segments produced around $44.6 million and $44.9 million, respectively, in operating profit. Among the four segments, the Truckload segment enjoyed the highest operating margin at 8%, while the operating margins of the Freight and Logistics segments were 4.3% and 2.7%, respectively.

Business turnaround after declining operating performance

2006 could have been considered the heyday of Con-way Inc (NYSE:CNW), with its peak operating margin then at 9.5%. However, its operating performance has been falling off the cliff, sliding to only a 2.4% margin in the most recent quarter. EPS dropped from $4.98 per share in 2006 to $1.85 per share in 2012. However, investors should focus on the company’s business restructuring to improve the margin, driving the business forward. In the next three years, Con-way Inc (NYSE:CNW) plans to improve the margin of the Freight segment and increase performance in the Truckload segment, which concentrates on the premium segment of the truckload industry. The margin improvement could be achieved via refining pricing and sales with land-based pricing, increasing network efficiency with linehaul load planning and investing in optimization tool technologies. For the Logistics segment, its Menlo Logistics unit was chosen for the company’s future growth by expanding the company’s footprint internationally, investing in higher margin services and delivering operational efficiency via lean principles.

For the full year 2013, Con-way expected to spend around $300 million in capital expenditure. The company estimated that around 60% of its 2013 revenue would come from the Freight segment, 30% from Menlo Logistics and the remaining 10% from the Truckload segment.