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An improving U.S. economy, substantial surge in manufactured and retail goods, and a sharp rebound in a number of end markets are expected to fuel growth of the transportation sector. Of the various means of the U.S. transport, trucking is the largest one, servicing 70% of freight tonnage.

Momentum to Continue

The U.S. trucking industry has witnessed gradual improvement in 2017. As the U.S. economy continues to grow, demand for carriage is also increasing and the momentum is expected to continue in the long-term. The trucking industry is the lifeblood of the economy and an integral part of the manufacturing, transportation and warehousing industries.

In ATA Freight Transportation Forecast 2017, ATA (American Trucking Associations) has projected freight volumes to grow 2.8% in 2017. Thereafter, from 2018 – 2023, the freight volume growth rate will be 3.4% per annum. For 2017, ATA has estimated that 15.18 billion tons of freight will be moved by all modes. The figure will rise 36.6% to 20.73 billion tons in 2028. Trucking revenues will likely grow 5.4% annually between 2018 and 2023 and are expected to reach $1 trillion by 2024.

Truck transport is a “derived demand” industry, which means demand for truckers depends on the demand for the products that trucks haul. Therefore, trucking serves as a barometer of the U.S. economy. Trucking industry will remain the dominant means of domestic freight and its share in the U.S. transportation sector is likely to remain not less than 67% by 2028.

Low Fuel Prices

Declining oil prices is a major boon for many truckers. Fuel cost accounts for a considerable portion of expenses of trucking companies. Lower oil prices have reduced their operating expenditure, thereby giving the bottom line a boost. With declining trucking cost, business enterprises are increasingly opting for this mode for shipment their products instead of railways and other means of transportations. 

While a few trucking companies hedge their fuel needs and impose fuel surcharge to customers, this is not the scenario industry-wide. There are many trucking companies which are positioned to gain from the fall in fuel prices.

Capacity Constraint

Capacity constraint in the form of driver shortage is driving top line growth of truckers. However, if the U.S. economy continues to grow steadily, truckers will have to hire more drivers to grab market share. Manufacturing, consumer spending and international trade are likely to be among the key contributors to the rapid growth. More drivers will be required to keep up with the growing demand and the truckers should consider investing more in their fleets.

Trucking Industry Sports Strong Zacks Rank

Trucking industry is currently in a great position from the Zacks Industry Rank perspective. The Industry is currently in the top 17% (43 out of 256) of the Zacks Categorized industries, suggesting it is well-positioned, especially when compared with other segments out there. Except railroads (102 out of 256), no other transportation industry is currently within the top 50% bracket of the Zacks Categorized industries. 

Our Top Picks

The ATA is confident that trucking tonnage will continue to grow over the next 10 years. At this stage, we believe investors should choose stocks which carry a favorable Zacks Rank to cash in on future growth opportunities. Taking these factors into account, we present four stocks with either a Zacks Rank #1 (Strong Buy) or 2 (Buy) for investors to consider. You can see the complete list of today’s Zacks #1 Rank stocks here.

Covenant Transportation Group Inc. (CVTI - Free Report) : Headquartered in Chattanooga, TN, this Zacks Rank #1 company is a truckload carrier that offers just-in-time and other premium transportation service for customers throughout the United States.

For 2018, the company’s Zacks Consensus Estimate for earnings stands at $1.36, indicating year-over-year growth of 52.53%. Notably, the Zacks Consensus Estimate for earnings has increased 9 cents over the last 60 days. For 2018, the Zacks Consensus Estimate for revenues stands at $755.10 million, up 7.31% year over year.

Old Dominion Freight Line Inc. (ODFL - Free Report) : Headquartered in Thomasville, NC, this Zacks Rank #1 company is a leading, less-than-truckload (LTL), union-free company providing super-regional and national LTL service.

For 2018, the company’s Zacks Consensus Estimate for earnings stands at $4.92, indicating year-over-year growth of 14.81%. Notably, the Zacks Consensus Estimate for earnings has increased 25 cents over the last 60 days. For 2018, the Zacks Consensus Estimate for revenues stands at $3,660 million, up 10.07% year over year.

P.A.M. Transportation Services Inc. (PTSI - Free Report) : Headquartered in Tontitown, AR, this Zacks Rank #1 company is an irregular route, common and contract motor carrier authorized to transport general commodities. All freight is transported as truckload quantities.

For 2018, the company’s Zacks Consensus Estimate for earnings stands at $1.45, indicating year-over-year growth of 8.21%. Notably, the Zacks Consensus Estimate for earnings has increased 30 cents over the last 60 days. For 2018, the Zacks Consensus Estimate for revenues stands at $498.90 million, up 11.39% year over year.

Universal Logistics Holdings Inc.  (ULH - Free Report) : Headquartered in Warren, MI, this Zacks Rank #2 company is a primarily non-asset based provider of transportation services to shippers throughout the United States and in the Canadian provinces of Ontario and Quebec.

For 2018, the company’s Zacks Consensus Estimate for earnings stands at $1.20, indicating year-over-year growth of 53.85%. Notably, the Zacks Consensus Estimate for earnings has increased 15 cents over the last 60 days. For 2018, the Zacks Consensus Estimate for revenues stands at $1,300 million, up 6.92% year over year.

Chart Looks Attractive

The chart below depicts how strongly have the four above-mentioned companies performed compared with the industry on a year-to-date basis.

Bottom Line

In its 2017-2018 Freight Transportation Forecast, the ATA has predicted that there will be continued growth for truckers driven by manufacturing, consumer spending and international trade over the next 12 years. At this stage, we believe that these four stocks with a favorable Zacks Rank are poised to capitalize on the growing opportunities.

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