(RTTNews) - Thursday, KeyBanc Capital downgraded Forward Air Corp. (FWRD: News ) shares to Hold from Buy. However, the brokerage increased its 2009 EPS estimate to $0.46 from $0.45.

Analyst Todd Fowler attributed the downgrade based on valuation. The analyst increased 2009 estimate to reflect the company's outperformance in the third quarter. Forward Air reported third quarter earnings of $0.13, slightly ahead of his estimate and the consensus of $0.12, and at the high-end of guidance of $0.08-$0.14.

In the analyst's view, Forward Air remains positioned to benefit from stabilizing/improving freight volumes and cost reduction initiatives, in addition to a potential pick-up in deferred airfreight volumes in response to lean inventories and supply-chain replenishment.

However, at about 33x the analyst's 2010 of $0.75, and within 5% of his prior price target of $26, he believes much of this optimism is priced in, potentially limiting further near-term upside. On a normalized earnings basis, 20x normalized earnings of $1.20, shares are more attractively valued, and the analyst remains constructive with his longer-term outlook.
The analyst believes earnings power is potentially greater over the next cycle given recent acquisitions, expansion into pool distribution, he estimates $0.15-$0.20 per share annually in 2010, and reduced cost structure, particularly in its airport-to-airport network, segment operating expenses down 10% year-over-year.

Currently, FWRD is down $1.51 or 6.08% and trading at $23.34.

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by RTT Staff Writer

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