3 Truck Stocks to Keep an Eye on Despite Industry Weakness
Prospects of stocks in the Zacks Transportation - Truck industry are being dented due to truck driver shortages. Reduced freight demand and supply-chain woes act as other deterrents.
Despite these challenges, we believe that stocks like Old Dominion Freight Line ODFL, Knight-Swift Transportation Holdings KNX and ArcBest Corporation ARCB should be on an investor’s watchlist.
Industry Description
The Zacks Transportation - Truck industry consists of truck operators transporting freight to diverse customers, mainly across North America. These companies provide full-truckload or less-than-truckload (LTL) services over the short, medium or long haul. The range of trucking services these companies provide includes dry-van, dedicated, refrigerated, flatbed and expedited. Some companies have an extensive fleet of company-owned tractors and trucks, and independent contractor trucks. Beside trucking, most entities offer logistics and intermodal services, as well as value-added services like container drayage, truckload brokerage, supply-chain consulting and warehousing. A few players also offer asset-light services to other third-party logistics companies in the transportation sector.
3 Trends Shaping the Future of the Trucking Industry
Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Below-par freight rates are also hurting the industry’s prospects. Highlighting the weak freight demand, the Cass Freight Shipments Index declined 1.3% month over month in November. This measure has deteriorated month over month in seven of the eleven months reported so far this year, which confirms the overall declining trend.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more companies are allocating their increasing cash piles through dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Trucking industry players, ODFL announced an increase in the quarterly dividend in February this year.
Prolonged Truck-Driver Shortage: The persistent driver crisis in the trucking industry is worsening supply-chain challenges across the United States. Driver scarcity issues limit trucking capacity, making it difficult for trucking companies to meet increased freight demand. After estimating a crunch of 80,000 drivers in 2021, ATA’s chief economist, Bob Costello, expects the trucking industry to be short of more than 160,000 drivers by 2030.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Truck industry is a 13-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #244, which places it in the bottom 3% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimates for 2024 have decreased 22.8% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to consider, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Transportation-Truck industry has surpassed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has gained 32.1% over this period compared with the S&P 500's appreciation of 23.5% and the broader sector’s uptick of 10.7%.
One-Year Price Performance
Industry's Current Valuation
Based on the trailing 12-month EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), a commonly used multiple for valuing trucking stocks, the industry is currently trading at 13.59X compared with the S&P 500’s 13.82X. It is also above the sector’s EV/EBITDA of 11.15X.
Over the past five years, the industry has traded as high as 13.67X and as low as 6.78X, the median being 9.73X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transport Truck Stocks to Watch
ArcBest: Based in Fort Smith, AK, ARCB provides freight transportation services and solutions. Favorable pricing is driving growth across ArcBest’s Asset-Based and Asset-Light segments. ARCB’s MoLo Solutions acquisition enhanced operations of the company by boosting shipments at the truckload services unit.
ARCB shares have surged 64.1% in a year. The company currently has a Zacks #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: ARCB
Old Dominion: This is a leading LTL entity based in Thomasville, NC. With improved freight demand, the strong performance of the LTL segment is driving growth. In 2022, LTL shipments and LTL revenue per shipment increased 0.8% and 18.3%, respectively. Despite the weakness in freight demand, LTL revenue per hundredweight (excluding fuel surcharges) increased 3.6% year over year in the first nine months 2023.
ODFL shares have gained 44.8% year over year. The company currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ODFL
Knight-Swift: Based in Phoenix, AZ, the company is the largest truckload carrier in North America. We are impressed by its efforts to boost shareholders’ value via dividends and buybacks.
The Zacks Consensus Estimate for the company’s 2024 earnings is pegged at $4.11 per share, indicating growth of 46.8% from the 2023 estimated level. KNX is currently a Zacks #3 Ranked stock.
Price and Consensus: KNX
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Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report
Knight-Swift Transportation Holdings Inc. (KNX) : Free Stock Analysis Report
ArcBest Corporation (ARCB) : Free Stock Analysis Report
