4 Top Trucking Stocks to Gain From Strong Freight Demand

Zacks Equity Research

March 21, 2022 7 min read

Strong trucking volumes, owing to increased freight demand, are driving the Zacks Transportation - Truck industry’s growth. Higher trucking rates amid capacity constraints contribute to buoyancy in the trucking industry. With these tailwinds expected to continue in the near term, the trucking industry's prospects appear rosy.

Companies like Old Dominion Freight Line ODFL, Forward Air Corporation FWRD, ArcBest Corporation ARCB and USA Truck USAK are well-poised to capitalize on the strong fundamentals in the industry.

About the Industry

The Zacks Transportation - Truck industry consists of truck operators transporting freight to a diverse group of customers, mainly across North America. These companies provide full-truckload or less-than-truckload (“LTL”) services over the short, medium or long haul. The wide range of trucking services provided by these companies include dry-van, dedicated, refrigerated, flatbed and expedited. Some of these companies have an extensive fleet of company-owned tractors and trucks as well as independent contractor trucks. Besides trucking, most of these entities offer logistics and intermodal services (provided by moving freight over the rail), as well as value-added services like container drayage, truckload brokerage, supply chain consulting and warehousing. A few also offer asset-light services to other third-party logistics companies in the transportation sector.

3 Trends Shaping the Future of the Trucking Industry

Strong Freight Demand: Steady growth in the U.S. economy and robust freight market conditions bode well for the trucking industry. Increased freight demand has been driving trucking volumes, which in turn has been bolstering the trucking companies’ top line. The American Trucking Associations’ (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.2% in January from the year-ago level. This marked the fifth straight year-over-year rise in the index. The same had risen 1.5% in December from the year-ago period. Truck tonnage volumes are anticipated to continue improving in the near term as freight demand remains strong owing to healthy consumer spending.

Truck-Driver Shortage: Persistent driver shortage in the trucking industry is worsening supply chain challenges across the United States. Driver scarcity issues are limiting trucking capacity, making it difficult for trucking companies to meet the increased freight demand. After estimating a shortage of 80,000 drivers in 2021, ATA’s chief economist Bob Costello expects the trucking industry to be short of more than 160,000 drivers by 2030.

High Truck Rates: Amid strong freight demand, tight trucking capacity is pushing up truck freight rates. This is driving the top line of trucking companies. Per the Cass Freight Index February report, freight rates rose 37% year over year in February, higher than a 35% year-over-year increase in January. With capacity constraints expected to continue in the near term, trucking rates are likely to remain elevated.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Trucking Industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank 25. This rank places it in the top 10% 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, implies encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate has been revised upward by nearly 39% over the past year.

Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.

Industry Outperforms Both Sector & S&P 500

The Zacks Truck industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite index over the past year.

Over this period, the industry has rallied 30.4% compared with the broader sector and the S&P 500 Index’s rise of 1.1% and 13.5%, respectively.

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 12.47X compared with the S&P 500’s 14.74X. It is also below the sector’s EV/EBITDA of 16.37X.

Over the past five years, the industry has traded as high as 22.14X and as low as 6.96X, with the median being 11.6X, as the chart below shows.

Enterprise Value/EBITDA (TTM)

Enterprise Value/EBITDA (TTM)

4 Promising Trucking Stocks

USA Truck: This company is engaged in the transportation of general commodity freight in interstate and foreign commerce. It operates in the continental United States and parts of Canada and Mexico. The strong performance of the trucking segment owing to solid freight demand and favorable pricing is aiding USA Truck. Cost-control measures are driving the company’s bottom line.

The Zacks Consensus Estimate for USA Truck’s 2022 earnings has been revised upward by 39.6% in the past 60 days. Shares of the company, which sports a Zacks Rank #1 (Strong Buy), have surged more than 25% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: USAK

Old Dominion: This is a leading LTL company based in Thomasville, NC. With improved freight demand, the strong performance of the LTL segment is driving the growth of Old Dominion. In 2021, revenues from the LTL services segment increased 30.7% on a year-over-year basis. In the same period, LTL shipments and LTL revenue per shipment increased 18.5% and 10.2%, respectively. This robust performance is expected to continue on the back of favorable market conditions.

The Zacks Consensus Estimate for Old Dominion’s 2022 earnings has been revised upward by 6.4% in the past 60 days. Shares of the company, carrying a Zacks Rank #2 (Buy), have appreciated 42% in a year’s time.

Price and Consensus: ODFL

ArcBest: Based in Fort Smith, AK, the company provides freight transportation services and solutions. Strong shipper demand and higher pricing are driving growth across ArcBest’s Asset-Based and Asset-Light segments. The company’s MoLo Solutions acquisition has enhanced operations of the ArcBest segment by boosting shipments at the truckload services unit.

The Zacks Consensus Estimate for ArcBest’s 2022 earnings has been revised upward by 16.2% in the past 60 days. Shares of the company, which carries a Zacks Rank #2, have rallied more than 35% in a year’s time.

Price and Consensus: ARCB

Forward Air: This company provides ground transportation and related logistics services to the North American air freight and expedited LTL market. With improved freight market conditions, higher volumes are driving Forward Air’s top line. Thanks to growth in its operations, FWRD is committed to rewarding its shareholders with dividends and share buybacks. In February, the company’s board approved a 14% hike in its quarterly dividend payment.

The Zacks Consensus Estimate for Forward Air’s 2022 earnings has been revised upward by 5.5% in the past 60 days. Shares of the company, carrying a Zacks Rank #2, have gained around 22% over the past year.