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Near-Term Trucking Stock Outlook: Freight Woes May Persist
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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 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 - Free Report) , provider of a broad range of transportation services to customers throughout the United States, Canada and Mexico, and Old Dominion Freight Line, Inc. (ODFL - Free Report) , a leading LTL (Less-Than-Truckload) company based in Thomasville, NC.
Let’s take a look at the industry’s three major themes:
The freight downturn, which took a significant toll on trucking companies in 2019, is likely to drag at least into the first half of 2020. Although the phase one trade deal reached between the United States and China in January is likely to bring about some relief, spurring economic growth and boosting freight demand in turn, material benefits will take time to be realized. Freight recession (the Cass Freight Index, measuring North American freight volumes and expenditures, declined in each of the twelve months of 2019) coupled with excess truck capacity in the market put substantial pressure on freight rates. Consequently, numerous small truck operators were forced out of business while their larger counterparts survived through dented profit margins. Given this bleak backdrop, most industry experts do not expect a turnaround until the second half of 2020. In fact, the Cass Freight Index does not anticipate “much growth” in freight volumes this year.
Amid the troublesome environment, the industry continues to battle driver shortages. Despite wage hikes, truck operators are finding it difficult to retain drivers. Moreover, against the low unemployment scenario, recruitment of new drivers is becoming a challenge as the old ones are retiring. Per Bob Costello, chief economist and senior vice president at the American Trucking Associations, United States will face a crisis of 100,000 drivers in five years and a further crunch of 160,000 drivers by 2028.
The industry is trying to cope with weak revenues from the freight sluggishness through stringent cost-cutting measures. For instance, Landstar System (LSTR - Free Report) reduced its operating expenses 11.6% year over year in 2019. Meanwhile, Knight-Swift Transportation Holdings’ (KNX - Free Report) operating costs declined 7.5% year over year in the same period. Additionally, Werner Enterprises (WERN - Free Report) is anticipated to have realized $10 million in savings on expenses in 2019. Consistent cost-control measures are aiding the bottom line of trucking companies.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #242. This rank places it at the bottom 5% 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 20.6% since last January.
Despite the industry’s drab near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector But Lags S&P 500
The Zacks Truck industry has outperformed the broader Transportation sector but lagged the Zacks S&P 500 composite over the past year.
Over this period, the industry has appreciated 10.9% compared with the broader sector’s increase of 2.2% and the S&P 500 Index’s 18.1% 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 8.91X compared with the S&P 500’s 11.95X. However, it is above the sector’s EV/EBITDA of 7.7X.
Over the past five years, the industry has traded as high as 23.44X, as low as 5.96X and at the median of 8.46X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
Bottom Line
The trucking companies should continue to benefit from consistent cost-reduction efforts. However, revenues and margins are unlikely to improve substantially in the near term as the effects of the phase one trade deal will take time to show up on the performance. Additionally, the industry is challenged by the truck driver scarcity.
Below we present two stocks with a Zacks Rank #2 (Buy) that are poised to grow despite concerns. We also have two more stocks with a Zacks Rank #3 (Hold) that you may retain in your portfolio now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Forward Air Corporation (FWRD - Free Report) is a leading provider of ground transportation and related logistics services to the North American air freight and expedited LTL market. The company carrying a Zacks Rank of 2 has outperformed the Zacks Consensus Estimate in three of the last four quarters (in-line result in one), the average beat being 6.6%. The Zacks Consensus Estimate for the company’s current-year EPS has moved northward by 3 cents in the past 60 days.
Price and Consensus: FWRD
Marten Transport, Ltd. (MRTN - Free Report) offers refrigerated and dry truck-based transportation services across the United States. This Zacks #2 Ranked company has outperformed the Zacks Consensus Estimate in three of the trailing four quarters (in-line in one), the average beat being 3.8%. Shares of the company have rallied approximately 13% in a year’s time.
Price and Consensus: MRTN
Saia, Inc. (SAIA - Free Report) is a leading multi-regional LTL carrier based in Johns Creek, GA. Shares of this Zacks Rank #3 company have surged more than 45% in a year.
Price and Consensus: SAIA
Werner Enterprises, Inc. is a transportation and logistics company headquartered in Omaha, NE. This company has a Zacks Rank of 3 and its shares have gained nearly 13% in a year.
Price and Consensus: WERN
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Near-Term Trucking Stock Outlook: Freight Woes May Persist
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 - Free Report) , provider of a broad range of transportation services to customers throughout the United States, Canada and Mexico, and Old Dominion Freight Line, Inc. (ODFL - Free Report) , a leading LTL (Less-Than-Truckload) company based in Thomasville, NC.
Let’s take a look at the industry’s three major themes:
The freight downturn, which took a significant toll on trucking companies in 2019, is likely to drag at least into the first half of 2020. Although the phase one trade deal reached between the United States and China in January is likely to bring about some relief, spurring economic growth and boosting freight demand in turn, material benefits will take time to be realized. Freight recession (the Cass Freight Index, measuring North American freight volumes and expenditures, declined in each of the twelve months of 2019) coupled with excess truck capacity in the market put substantial pressure on freight rates. Consequently, numerous small truck operators were forced out of business while their larger counterparts survived through dented profit margins. Given this bleak backdrop, most industry experts do not expect a turnaround until the second half of 2020. In fact, the Cass Freight Index does not anticipate “much growth” in freight volumes this year.
Amid the troublesome environment, the industry continues to battle driver shortages. Despite wage hikes, truck operators are finding it difficult to retain drivers. Moreover, against the low unemployment scenario, recruitment of new drivers is becoming a challenge as the old ones are retiring. Per Bob Costello, chief economist and senior vice president at the American Trucking Associations, United States will face a crisis of 100,000 drivers in five years and a further crunch of 160,000 drivers by 2028.
The industry is trying to cope with weak revenues from the freight sluggishness through stringent cost-cutting measures. For instance, Landstar System (LSTR - Free Report) reduced its operating expenses 11.6% year over year in 2019. Meanwhile, Knight-Swift Transportation Holdings’ (KNX - Free Report) operating costs declined 7.5% year over year in the same period. Additionally, Werner Enterprises (WERN - Free Report) is anticipated to have realized $10 million in savings on expenses in 2019. Consistent cost-control measures are aiding the bottom line of trucking companies.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks trucking industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #242. This rank places it at the bottom 5% 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 20.6% since last January.
Despite the industry’s drab near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector But Lags S&P 500
The Zacks Truck industry has outperformed the broader Transportation sector but lagged the Zacks S&P 500 composite over the past year.
Over this period, the industry has appreciated 10.9% compared with the broader sector’s increase of 2.2% and the S&P 500 Index’s 18.1% 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 8.91X compared with the S&P 500’s 11.95X. However, it is above the sector’s EV/EBITDA of 7.7X.
Over the past five years, the industry has traded as high as 23.44X, as low as 5.96X and at the median of 8.46X as the chart below shows.
Enterprise Value/EBITDA (TTM)
Enterprise Value/EBITDA (TTM)
Bottom Line
The trucking companies should continue to benefit from consistent cost-reduction efforts. However, revenues and margins are unlikely to improve substantially in the near term as the effects of the phase one trade deal will take time to show up on the performance. Additionally, the industry is challenged by the truck driver scarcity.
Below we present two stocks with a Zacks Rank #2 (Buy) that are poised to grow despite concerns. We also have two more stocks with a Zacks Rank #3 (Hold) that you may retain in your portfolio now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Forward Air Corporation (FWRD - Free Report) is a leading provider of ground transportation and related logistics services to the North American air freight and expedited LTL market. The company carrying a Zacks Rank of 2 has outperformed the Zacks Consensus Estimate in three of the last four quarters (in-line result in one), the average beat being 6.6%. The Zacks Consensus Estimate for the company’s current-year EPS has moved northward by 3 cents in the past 60 days.
Price and Consensus: FWRD
Marten Transport, Ltd. (MRTN - Free Report) offers refrigerated and dry truck-based transportation services across the United States. This Zacks #2 Ranked company has outperformed the Zacks Consensus Estimate in three of the trailing four quarters (in-line in one), the average beat being 3.8%. Shares of the company have rallied approximately 13% in a year’s time.
Price and Consensus: MRTN
Saia, Inc. (SAIA - Free Report) is a leading multi-regional LTL carrier based in Johns Creek, GA. Shares of this Zacks Rank #3 company have surged more than 45% in a year.
Price and Consensus: SAIA
Werner Enterprises, Inc. is a transportation and logistics company headquartered in Omaha, NE. This company has a Zacks Rank of 3 and its shares have gained nearly 13% in a year.
Price and Consensus: WERN
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>