With oil price in decade lows, airline stocks are sinking. Further, index ETF trackers, such as the S&P Transportation Select Industry Index (XTN) and iShares Transportation Average ETF (IYT), have underperformed the already weak DJIA and Standard & Poor's 500 one-year performance.
With this overall underperformance, are there any value opportunities, especially in the trucking sector, for an endeavoring value investor?
I was able to identify 12 trucking companies that are currently listed in the stock market. These companies are: ArcBest (ARCB, Financial), Old Dominion Freight Lines (ODFL, Financial), Heartland Express (HTLD, Financial), Celadon Group (CGI, Financial), YRC Worldwide (YRCW, Financial), Knight Transportation (KNX, Financial), Marten Transport (MRTN, Financial), Saia Inc. (SAIA, Financial), Universal Truckload Services Inc. (UACL, Financial), Forward Air Corp. (FWRD, Financial), Swift Transportation Co. (SWFT) and Werner Enterprises Inc. (WERN).
All of which have underperformed the S&P 500 (red) within the past year.
The numbers:
*Swift Transportation Company has missing 2007-2008 financial data.
Revenue growth
The trucking industry, nevertheless, felt the Great Recession aftershocks in 2009. From this chart I observed that both Old Dominion Freight Line and Universal Truckload Services have performed above group average for the past 10 years in revenue growth. Runners-up would include Knight Transportation and Forward Air; everyone else ranked inconsistently with the group average.
In 10-year growth average, Old Dominion, Universal Truckload and Forward Air have risen above their peers in terms of growth in business generally.
Profit growth
Determining who outperformed who with profit growth was tricky. ”‹
Thinking that I could separate outperformers by separating volatile performers still did not yield any consistent outperformer. Volatile profit growers/decliners were ArcBest, Saia, Universal Truckload Services and Forward Air.
Nevertheless, I ended up with a correlation of 97% in both groups with or without the volatile performers, which just means that, as a group, not one company has been consistent in growing its earnings.
Interestingly, Old Dominion Freight Line and Universal Truckload Services showed above peer average in a 10-year growth average perspective.
Book value growth
Old Dominion Freight Line, Marten Transport and Forward Air were worth mentioning here. These three companies have maintained steady and positive book value growth, even including their performance in the Great Recession. Further, both Knight Transportation and Saia have performed well in recent (a couple) years. ”‹
I have to separate Swift Transportation and YRC Worldwide from the chart secondary to their more volatile (historic) performance.
Nine-year book value growth average demonstrated the following companies (in red box) that have higher than peer average.
Free cash flow growth
Interestingly, not one company has been able to sustain positive free cash flow growth for the past decade. ”‹
Further, Knight Transportation, Marten Transport and YRC Worldwide were too volatile to include in the group chart.
This nine-year chart appears to be less reliable than the two preceding charts regarding free cash flow growth rate. The chart is unreliable secondary to volatility (negative growth to positive growth) that may greatly enhance its calculated annual growth.
D/E ratio
Most trucking companies have maintained below the group average. ”‹
Companies who have been higher than average (light green) are as follows: Swift Transportation, YRC Worldwide, Universal Truckload Services and Celadon Group.
Current dividend yield
Valuations
A review of the P/E ratio revealed that Mr. Market has not given equity of appreciation in the trucking industry. ”‹
*YRCW Worldwide currently has a negative book value.
Price to Book Value showed that more than half of the trucking companies mentioned here are overvalued.
Benjamin Graham’s Multiplier revealed that most trucking companies that had been performing well, such as Old Dominion Freight Line and Forward Air are overvalued when compared to the S&P 500. Saia, on the other hand, appears to be of good value among the trucking companies considering that it has an acceptable profit and book value growth.
In summary, I found Old Dominion Freight Line and Saia as strong performers in this group of trucking companies. However, since I always prefer getting paid (dividends) while waiting for any capital appreciation that may happen in the long term, I do not see myself buying any of the aforementioned trucking companies in this article soon.
