Persistently weak oil prices have continued to apply pressure to Kirby's (NYSE:KEX) valuation, as the shares are down more than 10% from my last update
on this leading operator of tank barges. While Kirby's direct exposure
to crude oil is relatively modest, the company can't escape the
downstream consequences of less demand for crude oil transportation or
the worries around a broader economic slowdown in the U.S. that would
impact its petrochemical business.
Over the long term, Kirby
should be fine. The large number of chemical plant expansions and
newbuilds already underway should support future demand for inland
barges, and the eventual expansion of domestic crude production should
help both the inland and coastal businesses.
The question is how
long "over the long term" takes to materialize. Pricing has softened in
the inland business (with contracts renewing at prices down by the
low-single digits) and there are plenty of examples of
businesses/industries that have seen cyclical pullbacks go longer and
deeper than expected. Kirby looks undervalued relative to its historical
EV/EBITDA averages, but with three straight guidance cuts, it is hard
to argue that the business has stabilized or found its bottom yet.
Continue here:
Kirby Tossed By The Crude Market
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