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4 Top Trucking Stocks to Benefit From Strong Freight Demand
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Upbeat trucking volumes owing to increased freight demand are driving the Zacks Transportation - Truck industry’s growth. Higher trucking rates amid capacity constraints contribute to buoyancy in the trucking industry. With these tailwinds expected to continue in the near term, the trucking industry's prospects appear rosy.
Companies like Old Dominion Freight Line (ODFL - Free Report) , J.B. Hunt Transport Services, Inc. (JBHT - Free Report) , ArcBest Corporation (ARCB - Free Report) and USA Truck are well-poised to capitalize on the strong fundamentals in the industry.
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 the 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 as well as independent contractor trucks. Besides trucking, most of these entities offer logistics and intermodal services (provided by moving freight over the rail) as well as value-added services like container drayage, truckload brokerage, supply-chain consulting and warehousing.
4 Trends Shaping the Future of the Trucking Industry
Strong Freight Demand: Steady growth in the U.S. economy and robust freight market conditions bode well for the trucking industry. Increased freight demand is steadily driving trucking volumes, which in turn, has been bolstering the trucking companies’ top line for a while. The American Trucking Associations’ (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index gained 7.9% in June from the year-ago level. The same rose 3.5% year over year in May. Truck tonnage volumes are anticipated to continue improving in the near term as freight demand remains strong owing to healthy consumer spending.
Prolonged Truck-Driver Shortage: Persistent driver crisis in the trucking industry is worsening 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 Hurt Bottom Line: The current scenario of rising fuel costs is denting the bottom line of trucking companies. Oil price is moving northward, mainly due to supply concerns triggered by the Russia-Ukraine war. The oil price escalated 48% in first-half 2022.
Oil price is likely to keep flaring up this year. This is an unfavorable development for the trucking companies and might dent bottom-line growth because fuel expenses represent one of the highest input costs for these players.
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 2022, JBHT upped its dividend 33% to 40 cents per share. In February, ODFL’s board cleared a 50% increase in its quarterly dividend payout, taking the total to 30 cents per share.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Trucking Industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank 14. This rank places it in the top 6% update the numbers tomorrow before uploading of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, implies encouraging 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate has been revised nearly 29.5% upward over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Both Sector & S&P 500
The Zacks Truck industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite Index over the past year.
Over this period, the industry has rallied 7.1% against the broader sector and the S&P 500 Index’s plunge of 13% and 17.3%, respectively.
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), a commonly used multiple for valuing trucking stocks, the industry is currently trading at 9.48X compared with the S&P 500’s 11.58X. It is also below the sector’s EV/EBITDA of 12.45X.
Over the past five years, the industry has traded as high as 21.94X and as low as 6.88X, with the median being 11.52X, as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
4 Trucking Stocks to Keep Tabs on
USA Truck: USAK is engaged in transporting general commodity freight as part of interstate and foreign commerce. The industry player operates in the continental United States and parts of Canada and Mexico. The strong performance of the trucking segment owing to solid freight demand and favorable pricing is aiding USA Truck. Cost-control measures are driving USAK’s bottom line.
The Zacks Consensus Estimate for USA Truck’s 2022 earnings has been revised 16% upward in the past 60 days. Shares of USAK, which currently sports a Zacks Rank #1 (Strong Buy), have surged more than 100% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: USAK
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.
The Zacks Consensus Estimate for ArcBest’s 2022 earnings has been revised 3.34% upward in the past 60 days. Shares of ARCB, which currently sport a Zacks Rank #1, have soared more than 40.4% in a year’s time.
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 the growth. In 2021, revenues from the LTL services segment surged 30.7% on a year-over-year basis. In the same period, LTL shipments and LTL revenue per shipment increased 18.5% and 10.2%, respectively. This robust performance is expected to continue on the back of favorable market conditions.
The Zacks Consensus Estimate for Old Dominion’s 2022 earnings has been revised marginally upward in the past 60 days. Shares of ODFL, presently carrying a Zacks Rank #3 (Hold), have appreciated 8.7% in a year’s time.
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 strong performances of the Dedicated Contract Services (DCS), Truckload and Final Mile Services (FMS) units. In January 2022, the board hiked its dividend 33% to 40 cents per share.
The Zacks Consensus Estimate for J.B. Hunt’s 2022 earnings has been revised marginally upward in the past 60 days. Shares of JBHT, which currently carries a Zacks Rank of 3, have rallied 5.8% in a year’s time.
Price and Consensus: JBHT
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4 Top Trucking Stocks to Benefit From Strong Freight Demand
Upbeat trucking volumes owing to increased freight demand are driving the Zacks Transportation - Truck industry’s growth. Higher trucking rates amid capacity constraints contribute to buoyancy in the trucking industry. With these tailwinds expected to continue in the near term, the trucking industry's prospects appear rosy.
Companies like Old Dominion Freight Line (ODFL - Free Report) , J.B. Hunt Transport Services, Inc. (JBHT - Free Report) , ArcBest Corporation (ARCB - Free Report) and USA Truck are well-poised to capitalize on the strong fundamentals in the industry.
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 the 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 as well as independent contractor trucks. Besides trucking, most of these entities offer logistics and intermodal services (provided by moving freight over the rail) as well as value-added services like container drayage, truckload brokerage, supply-chain consulting and warehousing.
4 Trends Shaping the Future of the Trucking Industry
Strong Freight Demand: Steady growth in the U.S. economy and robust freight market conditions bode well for the trucking industry. Increased freight demand is steadily driving trucking volumes, which in turn, has been bolstering the trucking companies’ top line for a while. The American Trucking Associations’ (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index gained 7.9% in June from the year-ago level. The same rose 3.5% year over year in May. Truck tonnage volumes are anticipated to continue improving in the near term as freight demand remains strong owing to healthy consumer spending.
Prolonged Truck-Driver Shortage: Persistent driver crisis in the trucking industry is worsening 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 Hurt Bottom Line: The current scenario of rising fuel costs is denting the bottom line of trucking companies. Oil price is moving northward, mainly due to supply concerns triggered by the Russia-Ukraine war. The oil price escalated 48% in first-half 2022.
Oil price is likely to keep flaring up this year. This is an unfavorable development for the trucking companies and might dent bottom-line growth because fuel expenses represent one of the highest input costs for these players.
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 2022, JBHT upped its dividend 33% to 40 cents per share. In February, ODFL’s board cleared a 50% increase in its quarterly dividend payout, taking the total to 30 cents per share.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Trucking Industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank 14. This rank places it in the top 6% update the numbers tomorrow before uploading of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, implies encouraging 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate has been revised nearly 29.5% upward over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Both Sector & S&P 500
The Zacks Truck industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite Index over the past year.
Over this period, the industry has rallied 7.1% against the broader sector and the S&P 500 Index’s plunge of 13% and 17.3%, respectively.
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), a commonly used multiple for valuing trucking stocks, the industry is currently trading at 9.48X compared with the S&P 500’s 11.58X. It is also below the sector’s EV/EBITDA of 12.45X.
Over the past five years, the industry has traded as high as 21.94X and as low as 6.88X, with the median being 11.52X, as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
4 Trucking Stocks to Keep Tabs on
USA Truck: USAK is engaged in transporting general commodity freight as part of interstate and foreign commerce. The industry player operates in the continental United States and parts of Canada and Mexico. The strong performance of the trucking segment owing to solid freight demand and favorable pricing is aiding USA Truck. Cost-control measures are driving USAK’s bottom line.
The Zacks Consensus Estimate for USA Truck’s 2022 earnings has been revised 16% upward in the past 60 days. Shares of USAK, which currently sports a Zacks Rank #1 (Strong Buy), have surged more than 100% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: USAK
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.
The Zacks Consensus Estimate for ArcBest’s 2022 earnings has been revised 3.34% upward in the past 60 days. Shares of ARCB, which currently sport a Zacks Rank #1, have soared more than 40.4% in a year’s time.
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 the growth. In 2021, revenues from the LTL services segment surged 30.7% on a year-over-year basis. In the same period, LTL shipments and LTL revenue per shipment increased 18.5% and 10.2%, respectively. This robust performance is expected to continue on the back of favorable market conditions.
The Zacks Consensus Estimate for Old Dominion’s 2022 earnings has been revised marginally upward in the past 60 days. Shares of ODFL, presently carrying a Zacks Rank #3 (Hold), have appreciated 8.7% in a year’s time.
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 strong performances of the Dedicated Contract Services (DCS), Truckload and Final Mile Services (FMS) units. In January 2022, the board hiked its dividend 33% to 40 cents per share.
The Zacks Consensus Estimate for J.B. Hunt’s 2022 earnings has been revised marginally upward in the past 60 days. Shares of JBHT, which currently carries a Zacks Rank of 3, have rallied 5.8% in a year’s time.
Price and Consensus: JBHT