Even Considering A Worse-Than-Consensus Downturn, ArcBest Seems Too Cheap

Given the difficulties of predicting the timing and magnitude of the cycles, trucking stocks can create some attractive trading opportunities, but at the cost of elevated risk. I think that’s a relevant consideration when looking at ArcBest (NASDAQ:ARCB) – the shares do look undervalued now, but trucking stocks (including less-than-truckload carriers like ArcBest) don’t perform well when the PMI heads below 50 and there is growing evidence of a meaningful slowdown in industry drivers.

Since my last update, these shares have risen about 15% overall (and they ran up almost 80% toward the end of 2021), outperforming other LTL carriers like Old Dominion (ODFL), Saia (SAIA), and Yellow (YELL). I am concerned that I’m underestimating the degree to which ArcBest will see volumes and profits contract in the coming downcycle, but the shares look undervalued on what I consider to be reasonable modeling assumptions. While the space is a little crowded with ideas now, I think ArcBest is worth a look.

 

Follow this link to the full article at Seeking Alpha: 

Even Considering A Worse-Than-Consensus Downturn, ArcBest Seems Too Cheap

ArcBest's Valuation Suggests A Much Bleaker Freight Market Than The Companies Are Seeing

 

Freight sector stocks, and trucking stocks in particular, are offering some interesting reads on the economy and the possibility that we’re at or near a sharp near-term peak. Specific to ArcBest (ARCB), the shares seem to be discounting a pretty significant upcoming deceleration in the business that seems out of whack with the realities of the sector.

Capacity is certainly a limiting factor across the industry, and I don’t think there’s going to be a near-term surge in capacity given the limits on driver availability. Moreover, while the economy is certainly going to decelerate as the recovery matures, further growth in e-commerce is a legitimate long-term driver, not to mention ArcBest’s own internal opportunities to gain share in trucking and its logistics operations.

I’ve been at this a long time and experience has taught me to be very cautious when cyclical companies are seeing robust current demand and the stocks look too cheap – usually that’s a sign you’re missing the coming edge of the cliff. Even pricing in at least a modest cliff’s edge here, though, I think the shares are too cheap.

 

Read more here: 

ArcBest's Valuation Suggests A Much Bleaker Freight Market Than The Companies Are Seeing

As Trucking Seems Set To Cool, How Cold Will Old Dominion's Multiple Get?

When I last reviewed Old Dominion (ODFL), I said I didn’t want to pay a near-peak multiple for near-peak earnings, even though I think Old Dominion is the best trucking company out there and one of the best-run companies I’ve followed over the years. The shares subsequently rose another 15% on strong volume, pricing, and cost control, but have since fallen almost 30% from that early September peak and now sits almost 20% lower than when I last wrote about the company.

I love the idea of picking up Old Dominion shares when the Street has bailed out on the less-than-truckload (or LTL) sector, but I’m not sure we're at that point of capitulation yet. Forward multiples have been cut in half in past downturns and we’re not there yet, though I don’t expect 2019 or 2020 to be disastrous. Figuring out the “right” multiple is really difficult right now, but I’d strongly urge readers to keep this stock on a watch list, as you don’t get the opportunity to buy great businesses at reasonable prices all that often, and cyclical sectors like trucking can see some pretty unreasonable valuations at the peaks and troughs.

Continue here:
As Trucking Seems Set To Cool, How Cold Will Old Dominion's Multiple Get?

Is Old Dominion Already At Maximum Overdrive?

LTL trucking company Old Dominion (ODFL) has been on my list of favorite companies for a long, long time, but the volatility of the shares hasn’t always made them a preferred option for my own portfolio. Although the trucking industry continues to see red-hot demand and the sector has done pretty well in the market, Old Dominion’s performance since my last update has lagged peers like Saia (SAIA), ArcBest (ARCB), and YRC Worldwide (YRCW), despite no real let up in performance. Keep in mind, though, that if you stretch the performance timeline out to a year or more, Old Dominion starts looking better.

It’s hard not to like a company that is seeing 20%-plus revenue growth, particularly when demand remains very healthy and supply is constrained by labor difficulties. On top of that, Old Dominion has proven itself over and over again with its investments in IT and its ability to recruit, train, and retain employees, and still has meaningful potential areas of growth. Even still, this is a stock where the forward P/E multiple can fall by half from peak to trough (and it recently hit a peak) and I’m not willing to pay a mid-teens multiple on EBITDA for even one of the best less-than-truckload (LTL) carriers.

Click here to continue:
Is Old Dominion Already At Maximum Overdrive?

Double-Digit Growth Continues To Propel Old Dominion

Forget its top-level performance in the less-than-truckload (or LTL) sector, Old Dominion (ODFL) is one of the better-run companies I've followed for the past decade-plus. Management sticks to what it does best, doesn't jeopardize the model just to please Wall Street in the short term, and continues to build the business for further growth. The only issue with that top-level performance is that it is no secret and Old Dominion's shares are seldom cheap outside of those cyclical downturns where the outlook for the sector is bleak.

Today is the opposite; demand for freight is expanding and Old Dominion is once again demonstrating that it can win share with service quality during such expansions. The shares are already pricing in double-digit EBITDA growth, and I think outperforming those expectations is going to be difficult. While I'd be very slow to sell Old Dominion if I already owned these shares, it's tough for me to argue for it as a buy at today's valuation.

Click here for more:
Double-Digit Growth Continues To Propel Old Dominion

New Opportunities Can Continue To Drive The Old Dominion Story

Old Dominion (NASDAQ:ODFL) is a good example of why it pays to keep an eye on good companies even when their share prices/valuations get a little steep. I thought Old Dominion looked interesting last August amid a marked slowdown in the industry (including the company's first year-over-year declines in tonnage in seven years), but the nearly 40% gain in the share price since then was even more than I had expected. While that is a strong performance next to ArcBest (NASDAQ:ARCB) (not to mention truckload carriers Heartland (NASDAQ:HTLD) and Knight (NYSE:KNX)), I will note that both Saia (NASDAQ:SAIA) and XPO (NYSEMKT:XPO) have done better (though XPO isn't a pure LTL trucking company).

Old Dominion is back to what I would call its more typical valuation situation – relatively expensive compared to its likely medium/long-term earnings and cash flow prospects unless you are willing to give a relatively generous premium for its superior quality. In the “gotta own something” world of institutional investing, though, I can appreciate why Old Dominion is popular now, as the company's performance and the stronger underlying recovery are supporting upward estimate revisions. What's more, Old Dominion's established strategic advantages should enable the company to continue gaining share in the competitive trucking space.

Continue here:
New Opportunities Can Continue To Drive The Old Dominion Story

Saia Heading Northeast And Looking To Unlock More Leverage

The last five years have been good to Saia (NASDAQ:SAIA), as this smaller less-than-truckload (or LTL) carrier has grown its way into a top-10 market position and seen its share price climb over 400%, trouncing ArcBest (NASDAQ:ARCB) and YRC Worldwide (NASDAQ:YRCW), and doing quite a bit better than Old Dominion (NASDAQ:ODFL) as well.

While the company's tonnage growth has been relatively modest (up less than 1% on a compounded basis since 2009), it has been able to improve pricing at a mid single-digit clip, while meaningfully improving its operating ratio by prioritizing better service and more efficient operations. Looking ahead, the company's expansion into the Northeast should drive meaningful revenue growth and help the company improve its operating leverage and asset turnover. The shares isn't like cheap today, though, so this looks more like a name for the watch list than a near-term buy.

Read more here:
Saia Heading Northeast And Looking To Unlock More Leverage

Seeking Alpha: Old Dominion's Operating Environment Has Shifted

Maybe the nicest thing I can say about Old Dominion's (NASDAQ:ODFL) performance since my last update on this leading less-than-truckload carrier is that even in a rough patch for trucking, the company has continued to do better than most of its peers. The shares are down about 20% over the past nine months, but ArcBest (NASDAQ:ARCB), Saia (NASDAQ:SAIA), and Roadrunner (NYSE:RRTS) have all done notably worse, with YRC Worldwide (NASDAQ:YRCW) the only notable outperformer excluding M&A.

My prior positive view on Old Dominion was predicated on a healthy economy and continuing excellence in operation, and only the second of those has really materialized. I continue to believe it is the best-run trucking company out there (at least in the LTL space), but a softer industrial economy, reduced truckload spillover, and changing shipping patterns are creating notable headwinds. Although I believe the shares are trading at an interesting valuation today, the Street will likely want to see weight trends and economic activity improve before getting significantly more bullish.

Continue reading here:
Old Dominion's Operating Environment Has Shifted

Seeking Alpha: Old Dominion's Performance Argues For Paying Up For Quality

It has been a while since Old Dominion (NASDAQ:ODFL) has looked cheap by conventional valuation standards, but then the company has logged a strong stretch of better-than-average performance. Almost a year ago, I thought that Old Dominion was a good stock to consider despite its valuation and the company's strong operating performance has led to better than 30% appreciation since then - well ahead of other trucking peers like Con-way (NYSE:CNW), ArcBest (NASDAQ:ARCB), YRC Worldwide (NASDAQ:YRCW), and Saia (NASDAQ:SAIA).

Old Dominion remains what it has been for some time - an exceptionally well-run trucking company that still has the opportunity to take share from less efficient rivals. The same is true on the valuation side, as this is a stock that is more challenging to argue is undervalued. Paying a low teens multiple to EBITDA doesn't seem unreasonable if expectations of mid-teens EBITDA growth prove accurate, but I can understand why some investors may hesitate to pay a premium for a company that is in a competitive, regulated, and cyclical industry.

Read more here:
Old Dominion's Performance Argues For Paying Up For Quality