A solidly recovering U.S. economy, a substantial surge in manufactured and retail goods, and a sharp rebound in a number of end markets are likely to fuel growth of the transportation sector. Of the various means of U.S. transport, trucking is the largest, servicing more than 70% of freight tonnage.
Solid YTD Performance by U.S. Trucking Industry
The Zacks defined Truck Industry —part of the broader Transportation sector — is currently ranked in the top 11% industries. Specifically, it is ranked number 28 of 252 industries. Year to date, this industry has provided a robust return of more than 34%. The truck industry is expected to outperform the broader market in the next 3-6 months.
The truck industry consists of truck operators transporting freight to a diverse group of customers, primarily across North America. These companies provide full-truckload or less-than-truckload (“LTL”) services over the short, medium or long haul.
Additionally, most of these entities offer logistics and intermodal services (provided by moving freight over the rail), and 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.
The American Trucking Associations, reported that truck tonnage increased 0.5% in August after falling 1.1% in July. August’s monthly gain was the first since March. The Cass Freight Index for Shipments rose 5% in August after declining 7.2% in July and June. Year over year, the shipment in August increased 12.3%.
First, trucking is an attractive market right now. Per the average estimation by analysts, the U.S. economy is likely to grow around 6% this year. Overall economic growth is good for truckers because increased production essentially means there will be more goods to be moved to more customers. The pent-up demand for manufactured and retail goods remain very strong.
Second, as economic recovery continues on increased vaccinations and easing coronavirus-led restrictions, trucking volumes are expected to remain buoyant through the end of 2021. Strong e-commerce demand amid the pandemic also supports trucking volume growth.
The pandemic has altered buying habits to a certain degree, so more people will be buying online. At the same time, demand from brick-and-mortar has picked up as the new cases of the Delta variant of the coronavirus fell significantly in September.
Third, persistent driver shortage continues to plague the trucking industry. The demanding nature of the job among other factors is leading to high driver turnovers. Despite pay hikes by trucking companies, the driver scarcity problem continues, thus leading to trucking capacity constraints. As freight demand continues to increase, capacity constraints are expected to become more pronounced. This will compel truckers to raise freight rates.
Fourth, according to the Cass Freight Index report, freight rates soared 42% year over year in August. With supply constraints likely to persist through the end of 2021 and freight demand expected to increase, trucking rates should remain elevated, thus boosting the top line of trucking companies. The Cass Freight Index reported that freight rate is likely to increase 35% in 2021 year over year.
Stocks in Focus
At this stage, several trucking stocks that look attractive for future growth. However, picking them on the following two criteria will make the task easy. First, select U.S. truckers that have strong growth potential for the rest of 2021. Second, choose stocks that have seen positive earnings estimate revisions within the last 90 days for the next one year.
Six stocks have fulfilled our selection criteria. These are: ArcBest Corp. ARCB, Covenant Logistics Group Inc. CVLG, Landstar System Inc. LSTR, Old Dominion Freight Line Inc. ODFL, Saia Inc. SAIA and J.B. Hunt Transport Services Inc. JBHT.
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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
Landstar System, Inc. (LSTR) : Free Stock Analysis Report
Saia, Inc. (SAIA) : Free Stock Analysis Report
Covenant Logistics Group, Inc. (CVLG) : Free Stock Analysis Report
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