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3 Trucking Stocks to Watch Amid Industry Challenges
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Prolonged truck driver shortages hurt Zacks Transportation - Truck industry’s growth. Also, supply-chain woes and high-fuel costs are denting the prospects of truck transport providers.
However, despite this gloom, there are some positives like impressive freight demand as economic activities gain pace following the easing of COVID-related restrictions. Stocks like Old Dominion Freight Line (ODFL - Free Report) , J.B. Hunt Transport Services, Inc. (JBHT - Free Report) and ArcBest Corporation (ARCB - Free Report) are well-positioned to capitalize on this healthy demand environment.
About the Industry
The Zacks Transportation - Truck industry consists of truck operators transporting freight to a diverse group of customers, mainlyacross 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 as well as 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.
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 line for a while. The American Trucking Associations’ (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index gained 5.5% in September from the year-ago level. The same rose 6.7% year over year in August. Truck tonnage volumes are anticipated to continue improving in the near term as freight demand remains strong.
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 & Supply-Chain Woes: Operating expenses are on the rise, mainly due to increased fuel costs, and hurting the bottom line. Fuel expenses represent a key input cost for any transportation player. High oil price (up 5.7% in the first nine months of 2022) is augmenting fuel costs. Even though the oil price declined from its multi-year highs due to recession fears, it remains high. Also, supply-chain woes are hurting the prospects of 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 like paying out dividends, which underline their solid financial footing and confidence in the business. Earlier in 2022, both JBHT & ODFL upped its dividend 33% and 50% to 40 cents per share and 30 cents, respectively.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Trucking Industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank 142. This rank places it in the Bottom 43% 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. Since Aug 31, 2022, the industry's earnings estimates for 2022 have decreased marginally.
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
Over the past year, the Zacks Transportation - Truck industry has declined 18.3% compared with the S&P 500 composite’s fall of 15.5%. The broader sector has declined 19.7% over the same time frame.
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 8.53X compared with the S&P 500’s 11.92X. It is also below the sector’s EV/EBITDA of 10.67X.
Over the past five years, the industry has traded as high as 22.06X and as low as 6.94X, with the median being 11.52X, as the chart below shows.
3 Trucking Stocks to Keep Tabs on
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 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. In first-half 2022, LTL shipments and LTL revenue per shipment increased 8.5% and 19.3%, respectively. This robust performance is expected to continue on the back of favorable market conditions.
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, Truckload and Final Mile Services units.
The Zacks Consensus Estimate for J.B. Hunt’s 2022 earnings has been revised 1.8% upward in the past 60 days. JBHT currently carries a Zacks Rank of 3.
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 2.4% upward in the past 90 days. ARCB is currently Zacks #3 Ranked.
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3 Trucking Stocks to Watch Amid Industry Challenges
Prolonged truck driver shortages hurt Zacks Transportation - Truck industry’s growth. Also, supply-chain woes and high-fuel costs are denting the prospects of truck transport providers.
However, despite this gloom, there are some positives like impressive freight demand as economic activities gain pace following the easing of COVID-related restrictions. Stocks like Old Dominion Freight Line (ODFL - Free Report) , J.B. Hunt Transport Services, Inc. (JBHT - Free Report) and ArcBest Corporation (ARCB - Free Report) are well-positioned to capitalize on this healthy demand environment.
About the Industry
The Zacks Transportation - Truck industry consists of truck operators transporting freight to a diverse group of customers, mainlyacross 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 as well as 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.
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 line for a while. The American Trucking Associations’ (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index gained 5.5% in September from the year-ago level. The same rose 6.7% year over year in August. Truck tonnage volumes are anticipated to continue improving in the near term as freight demand remains strong.
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 & Supply-Chain Woes: Operating expenses are on the rise, mainly due to increased fuel costs, and hurting the bottom line. Fuel expenses represent a key input cost for any transportation player. High oil price (up 5.7% in the first nine months of 2022) is augmenting fuel costs. Even though the oil price declined from its multi-year highs due to recession fears, it remains high. Also, supply-chain woes are hurting the prospects of 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 like paying out dividends, which underline their solid financial footing and confidence in the business. Earlier in 2022, both JBHT & ODFL upped its dividend 33% and 50% to 40 cents per share and 30 cents, respectively.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Trucking Industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank 142. This rank places it in the Bottom 43% 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. Since Aug 31, 2022, the industry's earnings estimates for 2022 have decreased marginally.
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
Over the past year, the Zacks Transportation - Truck industry has declined 18.3% compared with the S&P 500 composite’s fall of 15.5%. The broader sector has declined 19.7% over the same time frame.
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 8.53X compared with the S&P 500’s 11.92X. It is also below the sector’s EV/EBITDA of 10.67X.
Over the past five years, the industry has traded as high as 22.06X and as low as 6.94X, with the median being 11.52X, as the chart below shows.
3 Trucking Stocks to Keep Tabs on
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 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. In first-half 2022, LTL shipments and LTL revenue per shipment increased 8.5% and 19.3%, 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. ODFL currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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, Truckload and Final Mile Services units.
The Zacks Consensus Estimate for J.B. Hunt’s 2022 earnings has been revised 1.8% upward in the past 60 days. JBHT currently carries a Zacks Rank of 3.
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 2.4% upward in the past 90 days. ARCB is currently Zacks #3 Ranked.