Real Client Managed Portfolio Memorandum

REAL CLIENT MANAGED PORTFOLIO

TO: Real Client Managed Portfolio, Spring 2015 FROM: Michael Haberkorn, Terry Kwan, Devopama Pant, Yunlu Liu SUBJECT: Con-way Inc. Recommendation DATE: 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. Con-ways 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.