The Zacks Transportation - 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. In addition, most of these entities offer logistics and intermodal services. A few also offer asset-light services to other third-party logistics companies in the transportation sector.
Prominent industry players include J.B. Hunt Transport Services, Inc. (JBHT), provider of a broad range of transportation services to customers throughout the United States, Canada and Mexico, and Old Dominion Freight Line, Inc. (ODFL), a leading LTL company based in Thomasville, NC.
Let’s take a look at the industry’s three major themes:
The already weak freight environment has been worsened by coronavirus concerns with supply chain disruptions weighing on truck volumes. Amid large scale factory closures and business shutdowns, the American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index declined 12.2% in April, marking the largest fall in 26 years. Although modest improvement is expected in freight demand in the coming months as businesses open up operations with easing government restrictions, it is likely to take a while for freight demand to rebound, per ATA chief economist Bob Costello.
The industry has been persistently battling driver shortage for several years. As old drivers are retiring, trucking companies are finding it difficult to hire new drivers since the job mostly does not appeal to the younger generation. According to an estimate given by Costello, the United States will face a crisis of 100,000 drivers in five years and a further crunch of 160,000 drivers by 2028.
Most trucking companies are trying to cope with loss of revenues from the freight sluggishness through consistent cost-cutting measures. For instance, Landstar System (LSTR) reduced its operating expenses by approximately 8% year over year in the first quarter of 2020 (11.6% in 2019). Knight-Swift Transportation Holdings’ (KNX) operating costs also declined 6% year over year in the same period (7.5% in 2019).
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #209. This rank places it at the bottom 17% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak 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 positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. The group's current-year EPS estimate has decreased 36.3% since June 2019.
Despite the industry’s drab near-term prospects, we will present a few stocks that should be on your watch-list. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector & S&P 500
The Zacks Truck industry has outperformed the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has rallied 42% compared with the broader sector’s decrease of 4.6% and the S&P 500 Index’s 11.9% rise.
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is a commonly used multiple for valuing transportation stocks, the industry is currently trading at 10.89X compared with the S&P 500’s 11.97X. However, it is above the sector’s EV/EBITDA of 7.51X.
Over the past five years, the industry has traded as high as 21.85X, as low as 5.73X and at the median of 8.43X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
Given the dramatic drop in freight demand in the face of coronavirus woes, industry experts predict a long road to the freight recovery process. Against this backdrop, the trucking industry's near term is likely to remain under pressure. Cost-cutting measures should help the trucking companies better deal with the crisis.
Below we present four stocks with a Zacks Rank #3 (Hold) that you may want to retain in your portfolios now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ArcBest Corporation (ARCB) provides freight transportation services and solutions. The company has an impressive earnings history having outperformed the Zacks Consensus estimate in three of the past four quarters (miss in one), the average beat being more than 100%.
Price and Consensus: ARCB
Covenant Transportation Group Inc (CVTI) is a truckload carrier headquartered in Chattanooga, TN. This company surpassed earnings estimates in three of the trailing four quarters (in line in one), with average beat of 19.9%.
Price and Consensus: CVTI
Knight-Swift is a truckload carrier based in Phoenix, AZ. The company has trumped the Zacks Consensus Estimate for earnings in three of the preceding four quarters (in line in one), the average beat being 8%.
Price and Consensus: KNX
YRC Worldwide Inc (YRCW) is an Overland Park, KS-based company providing transportation and global logistics services. The company has surpassed the Zacks Consensus Estimate in three of the past four quarters (miss in one). It also has expected current-year earnings growth of 19.8%.
Price and Consensus: YRCW
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YRC Worldwide, Inc. (YRCW) : Free Stock Analysis Report
Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report
Landstar System, Inc. (LSTR) : Free Stock Analysis Report
KnightSwift Transportation Holdings Inc. (KNX) : Free Stock Analysis Report
J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
Covenant Transportation Group, Inc. (CVTI) : Free Stock Analysis Report
ArcBest Corporation (ARCB) : Free Stock Analysis Report
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