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Trucking Industry Outlook: Near Term Remains Challenging
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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 and /or Less-Than-truckload (LTL) services over short, medium or long haul. In addition, most of these companies offer logistics and intermodal services. A few also offer asset-light services to other third-party logistics companies in the transportation sector.
Let’s take a look at the industry’s three major themes:
Acute driver shortage continues to plague the trucking industry. As old drivers are retiring, recruitment of new ones is becoming a challenge, thanks to record-low unemployment rates and the hefty nature of the job. To counter the shortage, trucking companies have increased driver wages, which in turn could affect bottom-line growth due to higher total expenses.
With the trucking industry largely dependent on the growth of the domestic economy, sluggishness emanating from escalating trade tensions between United States and China, does not bode well. Trade wars are certainly not good for the economy and squeeze corporate profit margins. Evidently, major U.S. trucking company J.B. Hunt Transport Services (JBHT - Free Report) posted lower-than-expected results in the first quarter of 2019 on weakness in the West Coast market as a result of tariff threats.
Despite the first-quarter softness, the overall outlook pertaining to U.S. freight holds promise, which is a positive for the trucking industry. The American Trucking Associations (ATA) forecast freight volumes to rise 2.8% this year and 1% each year thereafter through 2025. Trucking will remain one of the most widely used modes of freight transportation, with truck freight tonnage anticipated to increase to 70.9% in 2019 and further to 71.4% in 2025 from 69.1% in 2013. While truckload volumes are projected to expand 3.5% in 2019, LTL volumes are estimated to rise 3.8%. Beyond 2019, truckload and LTL volumes are expected to grow 1.2% and 2.5%, respectively, each year until 2025.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #203. This rank places it at the bottom 21% 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 4.6% since last May.
Despite the industry’s drab near-term prospects, we will present a few stocks that you may want to hold in your portfolio. But, before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Lags Sector & S&P 500
The Zacks Truck industry has lagged both the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has declined 18.5% compared with the broader sector’s depreciation of 7.2% and the S&P 500 Index’s 4% increase.
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 7.4X compared with the S&P 500’s 10.9X. It is also below the sector’s EV/EBITDA of 7.5X.
Over the past five years, the industry has traded as high as 23.44X, as low as 5.96X and at the median of 8.71X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
Bottom Line
The U.S. freight projections are a clear indication of the trucking industry's growth prospects. However, the severe driver crisis is taking a toll on the operations of trucking companies. Additionally, the prolonged U.S.-China trade war has decelerated trading activities and in turn affected freight demand. These headwinds might mar the profitability of trucking companies in the near term.
Against this lackluster backdrop, we currently do not have any stock in the industry with a Zacks Rank #1 (Strong Buy) or 2 (Buy). But we present four stocks with a Zacks Rank #3 (Hold) that you may retain in your portfolio now on the back of its solid earnings history and positive estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.
Landstar System, Inc. (LSTR - Free Report) is an asset-light provider of integrated transportation management solutions based in Jacksonville, FL. The company boasts an impressive earnings history, having surpassed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 2.7%. The Zacks Consensus Estimate for the company’s current-year EPS has moved upward by a penny in the last 60 days.
Price and Consensus: LSTR
Old Dominion Freight Line, Inc. (ODFL - Free Report) is a leading LTL company based in Thomasville, NC. It offers LTL services on a regional, inter-regional and national basis. This company also has an impressive earnings history, having surpassed the Zacks Consensus Estimate in each of the preceding four quarters, with an average beat of 8.2%. The Zacks Consensus Estimate for the company’s current-year EPS has moved upward by 2 cents in the last 60 days.
Price and Consensus: ODFL
Werner Enterprises, Inc. (WERN - Free Report) is a transportation and logistics company based in Omaha, NE. The company has surpassed earnings estimates in each of the trailing four quarters with an average beat of 12.1%. The Zacks Consensus Estimate for the company’s current-year EPS has moved north by a penny over the last 60 days.
Price and Consensus: WERN
Heartland Express, Inc. (HTLD - Free Report) provides collaborative truckload transportation service and is based in North Liberty, IA. The company has outperformed the Zacks Consensus Estimate in each of the preceding four quarters with an average beat of 12.5%. The Zacks Consensus Estimate for the company’s current-year EPS has moved northward by a penny in the last 60 days.
Price and Consensus: HTLD
The Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Image: Bigstock
Trucking Industry Outlook: Near Term Remains Challenging
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 and /or Less-Than-truckload (LTL) services over short, medium or long haul. In addition, most of these companies offer logistics and intermodal services. A few also offer asset-light services to other third-party logistics companies in the transportation sector.
Let’s take a look at the industry’s three major themes:
Acute driver shortage continues to plague the trucking industry. As old drivers are retiring, recruitment of new ones is becoming a challenge, thanks to record-low unemployment rates and the hefty nature of the job. To counter the shortage, trucking companies have increased driver wages, which in turn could affect bottom-line growth due to higher total expenses.
With the trucking industry largely dependent on the growth of the domestic economy, sluggishness emanating from escalating trade tensions between United States and China, does not bode well. Trade wars are certainly not good for the economy and squeeze corporate profit margins. Evidently, major U.S. trucking company J.B. Hunt Transport Services (JBHT - Free Report) posted lower-than-expected results in the first quarter of 2019 on weakness in the West Coast market as a result of tariff threats.
Despite the first-quarter softness, the overall outlook pertaining to U.S. freight holds promise, which is a positive for the trucking industry. The American Trucking Associations (ATA) forecast freight volumes to rise 2.8% this year and 1% each year thereafter through 2025. Trucking will remain one of the most widely used modes of freight transportation, with truck freight tonnage anticipated to increase to 70.9% in 2019 and further to 71.4% in 2025 from 69.1% in 2013. While truckload volumes are projected to expand 3.5% in 2019, LTL volumes are estimated to rise 3.8%. Beyond 2019, truckload and LTL volumes are expected to grow 1.2% and 2.5%, respectively, each year until 2025.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #203. This rank places it at the bottom 21% 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 4.6% since last May.
Despite the industry’s drab near-term prospects, we will present a few stocks that you may want to hold in your portfolio. But, before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Lags Sector & S&P 500
The Zacks Truck industry has lagged both the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has declined 18.5% compared with the broader sector’s depreciation of 7.2% and the S&P 500 Index’s 4% increase.
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 7.4X compared with the S&P 500’s 10.9X. It is also below the sector’s EV/EBITDA of 7.5X.
Over the past five years, the industry has traded as high as 23.44X, as low as 5.96X and at the median of 8.71X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
Bottom Line
The U.S. freight projections are a clear indication of the trucking industry's growth prospects. However, the severe driver crisis is taking a toll on the operations of trucking companies. Additionally, the prolonged U.S.-China trade war has decelerated trading activities and in turn affected freight demand. These headwinds might mar the profitability of trucking companies in the near term.
Against this lackluster backdrop, we currently do not have any stock in the industry with a Zacks Rank #1 (Strong Buy) or 2 (Buy). But we present four stocks with a Zacks Rank #3 (Hold) that you may retain in your portfolio now on the back of its solid earnings history and positive estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.
Landstar System, Inc. (LSTR - Free Report) is an asset-light provider of integrated transportation management solutions based in Jacksonville, FL. The company boasts an impressive earnings history, having surpassed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 2.7%. The Zacks Consensus Estimate for the company’s current-year EPS has moved upward by a penny in the last 60 days.
Price and Consensus: LSTR
Old Dominion Freight Line, Inc. (ODFL - Free Report) is a leading LTL company based in Thomasville, NC. It offers LTL services on a regional, inter-regional and national basis. This company also has an impressive earnings history, having surpassed the Zacks Consensus Estimate in each of the preceding four quarters, with an average beat of 8.2%. The Zacks Consensus Estimate for the company’s current-year EPS has moved upward by 2 cents in the last 60 days.
Price and Consensus: ODFL
Werner Enterprises, Inc. (WERN - Free Report) is a transportation and logistics company based in Omaha, NE. The company has surpassed earnings estimates in each of the trailing four quarters with an average beat of 12.1%. The Zacks Consensus Estimate for the company’s current-year EPS has moved north by a penny over the last 60 days.
Price and Consensus: WERN
Heartland Express, Inc. (HTLD - Free Report) provides collaborative truckload transportation service and is based in North Liberty, IA. The company has outperformed the Zacks Consensus Estimate in each of the preceding four quarters with an average beat of 12.5%. The Zacks Consensus Estimate for the company’s current-year EPS has moved northward by a penny in the last 60 days.
Price and Consensus: HTLD
The Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>