3 Trucking Stocks to Keep Tabs on Amid Industry Challenges
Escalating operating expenses, led by increasing fuel costs are hurting the Zacks Transportation - Truck industry’s growth. Also, prolonged truck driver shortages are a concern.
Despite this gloom, industry participants are gaining from impressive freight demand (since economic activities have been gaining pace following the easing of COVID-led restrictions) and solid investor-friendly steps. Stocks like J.B. Hunt Transport Services, Inc. JBHT, Knight-Swift Transportation Holdings Inc. KNX and Werner Enterprises, Inc. WERN are well-positioned to capitalize on the healthy demand environment.
About the Industry
The Zacks Transportation - Truck industry consists of truck operators transporting freight to a diverse group of customers, mainly across North America. These companies provide full-truckload or less-than-truckload (LTL) services over the short, medium or long haul. The wide range of trucking services provided by these companies includes dry-van, dedicated, refrigerated, flatbed and expedited. Some of these 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 third-party logistics companies in the transportation sector.
4 Trends Shaping the Future of the Trucking Industry
Impressive Freight Demand: Rosy freight market conditions despite high inflation bode well for the trucking industry. Increased freight demand is steadily driving trucking volumes, which in turn, has been bolstering the trucking companies’ top lines for a while. The American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index gained 2.4% in May 2023, after dropping 1.7% in April. Truck tonnage volumes are anticipated to continue improving in the near term, as freight demand has been strong.
Prolonged Truck-Driver Shortage: Persistent driver crisis in the trucking industry is worsening the supply-chain challenges across the United States. Driver scarcity issues are limiting 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 on the rise mainly due to increased fuel costs, hurting the bottom lines of the industry participants. Fuel expenses are a key input cost for any transportation player. The recent production cut by the OPEC+ oil cartel, which includes OPEC members plus Russia, led to the increase in oil prices. This may aggravate inflationary pressures and cause heightened economic uncertainty and market volatility. Supply-chain woes are also hurting the prospects of the 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. These include paying out dividends, which underline their solid financial footing and confidence in their businesses. In January 2023, JBHT upped its dividend by 5% to 42 cents per share. In May 2023, WERN upped its dividend by 8% to 14 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 of 217. This rank places it in the bottom 14% 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 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 Zacks Consensus Estimate for 2023 earnings has declined 11.3% 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
In the past year, the Zacks Transportation - Truck industry has gained 26.9% compared with the S&P 500 composite’s rise of 14%. The broader sector has also surged 11.6% 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 10.57X compared with the S&P 500’s 13.37X. It is also below the sector’s EV/EBITDA of 10.59X.
In the past five years, the industry has traded as high as 16.46X and as low as 6.78X, the median being 9.71X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Trucking Stocks to Keep an Eye on
J.B. Hunt: The company provides a broad range of transportation services to a diverse group of customers in the United States, Canada and Mexico. Strong performances of the Dedicated Contract Services (DCS) segment is driving J.B. Hunt’s top line performance in the first-quarter of 2023.
The Zacks Consensus Estimate for J.B. Hunt’s 2024 revenues is pegged at $9.43 billion, indicating a rise of 11.9% from the 2023 estimated level. JBHT currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: JBHT
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 $4.19 per share, indicating growth of 33.9% from the 2023 estimated level. KNX is currently a Zacks #3 Ranked stock.
Price and Consensus: KNX
Werner: Based in Omaha, NE, the company focuses on transporting the truckload shipments such as retail store merchandise, consumer products, grocery products and manufactured products. Despite the challenging freight market conditions, WERN reported better-than-expected revenues in first-quarter 2023. The revenue beat can be attributed to the Logistics segment’s strong performance. Logistics’ revenues totaled $228.7 million, up 21% year over year.
The Zacks Consensus Estimate for Werner’s 2024 earnings is pegged at $3.38 per share, indicating growth of 24.8% from the 2023 estimated level. WERN is currently a Zacks #3 Ranked stock.
Price and Consensus: WERN
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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
Knight-Swift Transportation Holdings Inc. (KNX) : Free Stock Analysis Report
Werner Enterprises, Inc. (WERN) : Free Stock Analysis Report
