High gas prices seem unavoidable in the current economic backdrop. Nearly 75% of U.S. drivers have said that they are suffering financially due to the rising fuel prices. Last week’s national average for regular gasoline was $4.15 a gallon, significantly higher than $2.87 a year ago. Gas prices followed the trend when crude prices rapidly climbed last month due to the Russia-Ukraine war. However, when crude prices corrected themselves, gas prices eased but remained somewhat high due to what economists call the ‘rockets and feathers’ phenomenon.
Simultaneously, wages have climbed up through March, with unemployment falling, indicating a hot labor market. Over the past year, wages went up 5.6%, which is vastly faster than the 2-3% annual pay gains during the 2010s. The rapid pay gains also translate into higher compensation expenses for trucking companies. However, expanding intermodal operations should be excellent support for the industry.
Given this backdrop, we want to analyze how prominent trucking stocks Old Dominion Freight Line, Inc. (ODFL), Knight-Swift Transportation Holdings Inc. (KNX), and TFI International Inc. (TFII) are positioned.
Headwinds for the Trucking Industry
The trucking industry is experiencing increased operating expenses, primarily due to the rising fuel costs. As of April 5, the fuel price of $5.10 a gallon equated to a $0.30 per mile cost increase, which could significantly impact the cash flow of carriers.
On top of it, a truck capacity tightness proxy, tender rejections began to decline in March, indicating loose demand. Moreover, investor concerns over falling spot rates made them sell trucking stocks. As of April 8, the nation’s largest fleets have their prices falling between 10% to 15% since March-end. The Bank of America Corp. (BAC) has recently downgraded several trucking companies.
The SPDR S&P Transportation ETF (XTN) has declined 15.9% year-to-date compared to the S&P 500’s 7.4% decline over the same period. While the broader market has gained 5% over the past month, XTN has declined 4.3%.
Not Everything is Bleak
This month, President Biden announced his administration’s steps in implementing the ‘Trucking Action Plan,’ which aims to build up supply chain resilience and provide better trucking jobs. The plan seeks to address the industry’s labor shortage.
Simultaneously, truckers are relying on their intermodal segment for support. Trucking companies are expanding their intermodal operations to open up new growth channels.
Performance of Industry Leaders
With a market capitalization of $18.16 billion, J.B. Hunt Transport Services, Inc. (JBHT) is a prominent trucking company. The company experienced a sharp drop after reaching a high of $218.18 on March 16. JBHT’s stock tumbled 21.1% from March 17 to date. The stock plummeted 16.5% year-to-date, underperforming the broader market. Over the past month, JBHT has declined 13.9% to close yesterday’s trading session at $170.70.
Another notable name in the industry is C.H. Robinson Worldwide, Inc. (CHRW). The company has a market capitalization of $12.99 billion. The stock has gained 5.3% over the past year, underperforming the broader market’s gains over the same period. The stock has declined 4.7% year-to-date to close yesterday’s trading session at $102.62.
3 Trucking Stocks to Watch
Old Dominion Freight Line, Inc. (ODFL)
ODFL is a less than truckload (LTL) carrier operating in the United States and North America. The company offers regional, inter-regional, and national LTL services, including expedited transportation.
For the fiscal fourth quarter ended December 31, ODFL’s revenue increased 31.4% year-over-year to $1.41 billion. However, its total operating expenses also rose 26.7% from the prior-year quarter to $1.04 billion. Net income and EPS improved 46.9% and 49.7% from the same period the prior year to $278.81 million and $2.41.
The consensus EPS estimate of $2.37 for the quarter ended March 2022 indicates a 39.4% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $1.44 billion reflects a rise of 28% from the prior-year period. Moreover, ODFL has topped consensus EPS estimates in each of the trailing four quarters.
On the other hand, in terms of its forward EV/Sales, ODFL is currently trading at 4.74x, 188.2% higher than the industry average of 1.65x. The stock’s forward Price/Sales multiple of 4.79 is 270% higher than the industry average of 1.30.
The stock has gained 3.5% over the past year but declined 28% year-to-date to close yesterday’s trading session at $258.10.
ODFL has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ODFL has a Value grade of D, in sync with its stretched valuations. The stock has a Stability grade of C, consistent with its five-year monthly beta of 1.03. In the 22-stock Trucking Freight industry, it is ranked #14.
Click here to see the additional POWR Ratings for ODFL (Growth, Momentum, Sentiment, and Quality).
Knight-Swift Transportation Holdings Inc. (KNX)
KNX is a truckload services provider in the United States, Mexico, and Canada. The company operates through the four broad segments Trucking; Logistics; Less-Than-Truckload (LTL); and Intermodal.
KNX’s total revenue increased 42.2% year-over-year to $1.82 billion in the fiscal fourth quarter ended December 31. Adjusted net income attributable to KNX and adjusted EPS rose 69.2% and 71.3% from the same period a year ago to $268.67 million and $1.61. However, its adjusted operating expenses also increased 32.8% from the prior-year quarter to $1.32 billion.
Analysts expect KNX’s EPS to increase 11.4% year-over-year to $5.26 for fiscal 2022. However, Street expects its EPS to decline 7.6% from the prior year to $4.86 in fiscal 2023.
In terms of its trailing 12-month net income margin, KNX’s 12.39% is 90.54% higher than the industry average of 6.50%. However, its trailing 12-month ROE of 11.99% is 12.38% lower than the industry average of 13.68%.
KNX’s stock has declined 24% year-to-date to close yesterday’s trading session at $46.34. However, it has gained 2% over the past five days.
KNX has an overall C rating, which translates to Neutral in our POWR Ratings system. The stock has a Sentiment and Quality grade of C, which is justified by its mixed analyst sentiments and profit margins. It is ranked #15 in the Trucking Freight industry.
To see the additional POWR Ratings for Growth, Value, Momentum, and Stability for KNX, click here.
TFI International Inc. (TFII)
TFII, headquartered in Saint Laurent, Canada, provides transportation and logistics services in the U.S., Mexico, and Canada. The company operates through the Package and Courier; Less-Than-Truckload (LTL); Truckload (TL); and Logistics segments.
For the fiscal fourth quarter ended December 31, TFII’s total revenue increased 90.8% year-over-year to $2.14 billion. However, net capital expenditures also rose 118.6% from the prior-year quarter to $68.24 million. Adjusted net income and adjusted EPS came in at $148.60 million and $1.57, up 59.1% and 60.2% from the prior-year period.
In terms of forward non-GAAP P/E, TFII is trading at 12.77x, 25.6% lower than the industry average of 17.18x. However, the stock’s Price/Book multiple of 3.01 is 17.5% higher than the industry multiple of 2.56.
TFII’s trailing 12-month gross profit margin of 19.65% is 32.46% lower than the industry average of 29.09%. On the other hand, its trailing 12-month ROE of 33.14% is 142.27% higher than the industry average of 13.68%.
The stock has gained 10% over the past year but declined 25.4% year-to-date to close yesterday’s trading session at $83.63.
TFII has an overall C rating, equating to Neutral in our proprietary rating system. The stock has a C grade for Value and Quality, consistent with its mixed valuations and profit margins. It is ranked #11 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see TFII ratings for Growth, Momentum, Stability, and Sentiment here.
ODFL shares were trading at $260.00 per share on Tuesday afternoon, up $1.90 (+0.74%). Year-to-date, ODFL has declined -27.38%, versus a -7.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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