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4 Trucking Stocks Set to Tide Over Industry Slowdown on Improving Freight
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The coronavirus crisis wreaked havoc on the Zacks Transportation - Truck industry with a slowdown in freight demand and supply chain disruptions weighing significantly on trucking volumes. However, with the gradual recovery in the economy and improving freight market conditions, things are looking up for the industry.
Amid this positivity, stocks like Old Dominion Freight Line Inc (ODFL - Free Report) , Knight-Swift Transportation Holdings Inc (KNX - Free Report) , Landstar System Inc (LSTR - Free Report) and Werner Enterprises Inc (WERN - Free Report) are set to gain. Consistent cost-control measures are supporting the bottom line of trucking companies.
About the Industry
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.
A prominent industry player is J.B. Hunt Transport Services, Inc. (JBHT - Free Report) , which provides a broad range of transportation services to customers throughout the United States, Canada and Mexico.
3 Trends Shaping the Future of the Trucking Industry
Improving Freight Demand: With the ramp up in economic activities and the resultant improvement in freight market conditions, trucking companies are gradually recovering from the coronavirus-induced slump in business. According to the latest Cass Freight Shipments Index report, shipment volumes improved 8% in August from the July levels. Volumes have been consistently improving on a month-on-month basis since May. As the economy continues to recover, freight volumes are expected to keep expanding, thus supporting the growth of trucking companies at least in the near term. According to American Trucking Associations, truck freight volumes are expected to fall 8.8% in 2020, but are predicted to rebound in 2021 by increasing 4.9%. In the following year through 2026, trucking volumes are anticipated to rise 3.2% per year, on average.
Cost-Control Measures: Freight volumes have improved from the dramatic lows but are still far below year-ago levels. To offset the resulting impact on revenues, trucking companies are exercising significant cost-control measures. For instance, Landstar's total expenses declined 13.1% year over year in first-half 2020. Additionally, Knight-Swift reduced its operating expenses by 10.8% year over year in the same period. Consistent cost-reduction efforts should aid the bottom line of trucking companies.
Truck-Driver Shortage: Driver shortage continues to be a major challenge facing the trucking industry. As old drivers retire, trucking companies find it difficult to hire new drivers since the job mostly does not appeal to the younger generation. The driver scarcity problem is likely to increase as freight demand improves, with the economy recovering. Notably, the American Trucking Associations forecasts driver shortage to double in the next decade.
Zacks Industry Rank Indicates Bright Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #4. This rank places it at the top 2% 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, implies sunny 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 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. Since May 2020, the industry’s earnings estimate for 2020 and 2021 has been revised 22.1% and 15% upward, respectively.
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 taking a look at the industry’s shareholder returns and its current valuation first.
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 31.6% compared with the broader sector and the S&P 500 Index’s 11.3% and 17.7% 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 12.02X compared with the S&P 500’s 15.42X. However, it is above the sector’s EV/EBITDA of 10.08X.
Over the past five years, the industry has traded as high as 21.94X, as low as 5.80X and at the median of 8.72X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
4 Trucking Stocks to Keep a Tab on
Old Dominion Freight Line: This Thomasville, NC-based company offers LTL services on a regional, inter-regional and national basis. With an uptick in freight activity, the company is seeing higher LTL revenue per day. Cost-control measures are supporting this company’s bottom line. Notably, Old Dominion’s operating expenses declined 8.4% year over year in the first half of 2020.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 6.9% in the last 60 days. The stock has rallied more than 48% in the past six months.
Price and Consensus: ODFL
Knight-Swift Transportation Holdings: Based in Phoenix, AZ, the company provides numerous efficient and low-cost truckload transportation, intermodal and logistics services, to customers throughout North America. Witnessing an uptick in freight demand since the June quarter, the company raised its expectations for 2020 earnings. Efficient cost-control measures are supporting the company’s bottom line. Consistent measures to reward its shareholders are an added positive for the company. In February, Knight-Swift’s board approved a 33.3% hike in quarterly cash dividend to 8 cents per share.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 5.2% in the last 60 days. Shares of the company have appreciated more than 16% over the past six months.
Price and Consensus: KNX
Landstar System: Based in Jacksonville, FL, the company provides integrated transportation management solutions to customers throughout the United States, Canada, Mexico as well as other countries in North America. Gradual recovery in the freight scene is a boon to the company. It has been witnessing an improvement in trucking volumes over the past few months, owing to which it raised earnings and revenues projections for the third quarter of 2020. Landstar’s commitment to reward its shareholders is also encouraging. In a shareholder-friendly move, the company increased its quarterly dividend by 13.5% to 21 cents per share (annualized 84 cents) in July.
The Zacks Consensus Estimate for Landstar’s current-year earnings has been revised northward by 9.8% in the last 60 days. Shares of the company have gained more than 28% over the past six months.
Price and Consensus: LSTR
Werner Enterprises: This is a transportation and logistics company based in Omaha, NE. it primarily focuses on transporting truckload shipments. Cost-reduction initiatives are supporting the company’s growth potential. The company’s focus on investing in new trucks and trailers to improve its operational efficiency and reduce fuel costs is noteworthy.
The Zacks Consensus Estimate for Werner’s current-year earnings has been revised upward by 9.5% over the last 60 days. Shares of the company have gained approximately10% over the past six months.
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
4 Trucking Stocks Set to Tide Over Industry Slowdown on Improving Freight
The coronavirus crisis wreaked havoc on the Zacks Transportation - Truck industry with a slowdown in freight demand and supply chain disruptions weighing significantly on trucking volumes. However, with the gradual recovery in the economy and improving freight market conditions, things are looking up for the industry.
Amid this positivity, stocks like Old Dominion Freight Line Inc (ODFL - Free Report) , Knight-Swift Transportation Holdings Inc (KNX - Free Report) , Landstar System Inc (LSTR - Free Report) and Werner Enterprises Inc (WERN - Free Report) are set to gain. Consistent cost-control measures are supporting the bottom line of trucking companies.
About the Industry
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.
A prominent industry player is J.B. Hunt Transport Services, Inc. (JBHT - Free Report) , which provides a broad range of transportation services to customers throughout the United States, Canada and Mexico.
3 Trends Shaping the Future of the Trucking Industry
Improving Freight Demand: With the ramp up in economic activities and the resultant improvement in freight market conditions, trucking companies are gradually recovering from the coronavirus-induced slump in business. According to the latest Cass Freight Shipments Index report, shipment volumes improved 8% in August from the July levels. Volumes have been consistently improving on a month-on-month basis since May. As the economy continues to recover, freight volumes are expected to keep expanding, thus supporting the growth of trucking companies at least in the near term. According to American Trucking Associations, truck freight volumes are expected to fall 8.8% in 2020, but are predicted to rebound in 2021 by increasing 4.9%. In the following year through 2026, trucking volumes are anticipated to rise 3.2% per year, on average.
Cost-Control Measures: Freight volumes have improved from the dramatic lows but are still far below year-ago levels. To offset the resulting impact on revenues, trucking companies are exercising significant cost-control measures. For instance, Landstar's total expenses declined 13.1% year over year in first-half 2020. Additionally, Knight-Swift reduced its operating expenses by 10.8% year over year in the same period. Consistent cost-reduction efforts should aid the bottom line of trucking companies.
Truck-Driver Shortage: Driver shortage continues to be a major challenge facing the trucking industry. As old drivers retire, trucking companies find it difficult to hire new drivers since the job mostly does not appeal to the younger generation. The driver scarcity problem is likely to increase as freight demand improves, with the economy recovering. Notably, the American Trucking Associations forecasts driver shortage to double in the next decade.
Zacks Industry Rank Indicates Bright Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #4. This rank places it at the top 2% 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, implies sunny 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 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. Since May 2020, the industry’s earnings estimate for 2020 and 2021 has been revised 22.1% and 15% upward, respectively.
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 taking a look at the industry’s shareholder returns and its current valuation first.
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 31.6% compared with the broader sector and the S&P 500 Index’s 11.3% and 17.7% 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 12.02X compared with the S&P 500’s 15.42X. However, it is above the sector’s EV/EBITDA of 10.08X.
Over the past five years, the industry has traded as high as 21.94X, as low as 5.80X and at the median of 8.72X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
4 Trucking Stocks to Keep a Tab on
Old Dominion Freight Line: This Thomasville, NC-based company offers LTL services on a regional, inter-regional and national basis. With an uptick in freight activity, the company is seeing higher LTL revenue per day. Cost-control measures are supporting this company’s bottom line. Notably, Old Dominion’s operating expenses declined 8.4% year over year in the first half of 2020.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 6.9% in the last 60 days. The stock has rallied more than 48% in the past six months.
Price and Consensus: ODFL
Knight-Swift Transportation Holdings: Based in Phoenix, AZ, the company provides numerous efficient and low-cost truckload transportation, intermodal and logistics services, to customers throughout North America. Witnessing an uptick in freight demand since the June quarter, the company raised its expectations for 2020 earnings. Efficient cost-control measures are supporting the company’s bottom line. Consistent measures to reward its shareholders are an added positive for the company. In February, Knight-Swift’s board approved a 33.3% hike in quarterly cash dividend to 8 cents per share.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 5.2% in the last 60 days. Shares of the company have appreciated more than 16% over the past six months.
Price and Consensus: KNX
Landstar System: Based in Jacksonville, FL, the company provides integrated transportation management solutions to customers throughout the United States, Canada, Mexico as well as other countries in North America. Gradual recovery in the freight scene is a boon to the company. It has been witnessing an improvement in trucking volumes over the past few months, owing to which it raised earnings and revenues projections for the third quarter of 2020. Landstar’s commitment to reward its shareholders is also encouraging. In a shareholder-friendly move, the company increased its quarterly dividend by 13.5% to 21 cents per share (annualized 84 cents) in July.
The Zacks Consensus Estimate for Landstar’s current-year earnings has been revised northward by 9.8% in the last 60 days. Shares of the company have gained more than 28% over the past six months.
Price and Consensus: LSTR
Werner Enterprises: This is a transportation and logistics company based in Omaha, NE. it primarily focuses on transporting truckload shipments. Cost-reduction initiatives are supporting the company’s growth potential. The company’s focus on investing in new trucks and trailers to improve its operational efficiency and reduce fuel costs is noteworthy.
The Zacks Consensus Estimate for Werner’s current-year earnings has been revised upward by 9.5% over the last 60 days. Shares of the company have gained approximately10% over the past six months.
Price and Consensus: WERN
Each of the stocks mentioned above sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>