3 Trucking Stocks to Keep an Eye on Amid Industry Challenges
Prolonged truck driver shortages hurt Zacks Transportation - Truck industry’s growth. Also, escalating operating expenses led by high fuel costs are denting the prospects of trucking stocks.
However, despite this gloom, there are some positives, like improving freight demand and solid investor-friendly steps. Stocks like Old Dominion Freight Line ODFL, J.B. Hunt Transport Services, Inc. JBHT and ArcBest Corporation ARCB are well-positioned to capitalize on the positive aspects.
About the Industry
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. Besides 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 also offer asset-light services to other third-party logistics companies in the transportation sector.
4 Trends Shaping the Future of the Trucking Industry
Improving Freight Demand: Improvement in freight market conditions despite inflation-related headwinds bode well for the trucking industry. Increased freight demand is steadily driving trucking volumes, which has been bolstering the trucking companies’ top line for a while. The American Trucking Association’s (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index gained 0.2% month on month in August 2023 after rising 1.1% in July. Truck tonnage volumes are anticipated to continue improving in the near term.
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.
High Fuel Costs & Supply-Chain Woes: Operating expenses are rising, mainly due to increased fuel costs, and hurting the bottom line. Fuel expenses represent a crucial input cost for any transportation player. High oil price (up 12% in a month) is augmenting fuel costs. Oil prices have been on a tear since Russia and Saudi Arabia extended voluntary supply cuts through the end of the current year. Also, supply-chain woes are hurting the prospects of stocks belonging to the trucking industry.
Dividend Hikes Signal Financial Strength: With the resumption of economic activities, many players, including some trucking companies, are reactivating their shareholder-friendly measures, like paying out dividends, which underline their solid financial footing and confidence in the business. In January 2023, JBHT upped its dividend by 5% to 42 cents per share. In February 2023, ODFL upped its dividend by 33% to 40 cents per share.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Trucking Industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank 239. This rank places it in the Bottom 5% of more than 250 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 outperform 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 results from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are gradually losing confidence in this group’s earnings growth potential. The Zacks Consensus Estimate for 2023 earnings has declined 30.1% year over year for the industry.
Before we present a few stocks from the industry that you may want to consider, let’s look at the industry’s recent stock market performance and the valuation picture.
Industry's Price Performance
Over the past year, the Zacks Transportation - Truck industry has surged 35% compared with the S&P 500 composite’s rise of 17.4%. The broader sector has increased 10.9% over the same time frame.
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 12.11X compared with the S&P 500’s 12.95X. It is also below the sector’s EV/EBITDA of 10.19X.
Over the past five years, the industry has traded as high as 15.87X and as low as 6.78X, with the median being 9.73X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Trucking Stocks to Keep Tabs on
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 5.2% year over year in first-half 2023.
Shares of ODFL have surged 59.8% year-over-year. ODFL currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: ODFL
J.B. Hunt: J.B. Hunt Transport Services provides a broad range of transportation services to a diverse group of customers in the United States, Canada and Mexico. JBHT is benefiting from efforts to reward its shareholders through dividend payments and share repurchases.
Shares of JBHT have surged 14.5% year-over-year. JBHT currently carries a Zacks Rank of 3.
Price and Consensus: JBHT
ArcBest: Based in Fort Smith, AK, ARCB provides freight transportation services and solutions. Strong shipper demand and higher pricing are driving growth across ArcBest’s Asset-Based and Asset-Light segments. ARCB’s MoLo Solutions acquisition enhanced operations of the ArcBest segment by boosting shipments at the truckload services unit.
Shares of ARCB have surged 39.2% year-over-year. ARCB is currently a Zacks #3 Ranked stock.
Price and Consensus: ARCB
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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report
ArcBest Corporation (ARCB) : Free Stock Analysis Report
