Date: 5/22/12
Price: Free
SmallCap Network provides comprehensive research and opinions on CVTI, YRCW, XPO, FFEX and AUTO.
Trucking Industry Ripe for Takeovers (YRCW, FFEX, CVTI, AUTO, XPO)
Consolidation is Taking Place and will Increase in the Trucking Sector
Trucking stocks such as YRC Worldwide (NASDAQ: YRCW), Frozen Food Express (NASDAQ: FFEX), Covenant Transportation Group (NASDAQ: CVTI) and AutoInfor Inc (NASDAQ: AUTO) could be acquired like Express 1 Expedited Solutions (AMEX: XPO) as share prices are weak while the long term outlook for the industry is strong, making the sector ideal for consolidation.
Bob Costello, Chief Economist for the American Trucking Association, reported that the For Hire Truck Tonnage Index had fallen from the month of May by 2.3 percent. In April, it had increased less than one percent. Despite this decline, Costello is optimistic about the remainder of the year for the trucking industry.
He expects freight volumes to improve with increased economic activity. Costs should be coming down with declining fuel prices. Truckers had been losing business to railroads, which can carry loads fifty times heavier for the same cost in fuel. More of this lost shipping volume will now be recovered.
As a result of this adverse economic climate, share prices for companies in the trucking industry are low. In addition, there are many smaller entities, as it is a fragmented industry. This makes the sector ideal for consolidation.
On the buy side of the equation, merger and acquisition activity is proceeding at a record pace. The combination of low interest rates and high amounts of liquidity (corporations are sitting on more than $2 trillion in cash) has companies looking to expand through purchases rather than external growth. With the low share prices for publicly traded trucking companies, buyers will be able to acquire assets for less than it would cost on the open market. This is a model long utilized by oil companies when the price of crude is low as it costs less to buy a firm with proven reserves than it would to find it, drill it, and pump it from the ground.
This consolidation has already begun to happen in the trucking sector. Express 1 Expedited Solutions was just purchased in a buyout offer. Express 1 is being acquired to be part of a roll up process that will consolidate a number of companies in the transportation sector in a more efficient operation with just one set of management. More trucking companies will be acquired in this manner as the prospects of the industry begin to brighten
Bob Costello, Chief Economist for the American Trucking Association, reported that the For Hire Truck Tonnage Index had fallen from the month of May by 2.3 percent. In April, it had increased less than one percent. Despite this decline, Costello is optimistic about the remainder of the year for the trucking industry.
He expects freight volumes to improve with increased economic activity. Costs should be coming down with declining fuel prices. Truckers had been losing business to railroads, which can carry loads fifty times heavier for the same cost in fuel. More of this lost shipping volume will now be recovered.
As a result of this adverse economic climate, share prices for companies in the trucking industry are low. In addition, there are many smaller entities, as it is a fragmented industry. This makes the sector ideal for consolidation.
On the buy side of the equation, merger and acquisition activity is proceeding at a record pace. The combination of low interest rates and high amounts of liquidity (corporations are sitting on more than $2 trillion in cash) has companies looking to expand through purchases rather than external growth. With the low share prices for publicly traded trucking companies, buyers will be able to acquire assets for less than it would cost on the open market. This is a model long utilized by oil companies when the price of crude is low as it costs less to buy a firm with proven reserves than it would to find it, drill it, and pump it from the ground.
This consolidation has already begun to happen in the trucking sector. Express 1 Expedited Solutions was just purchased in a buyout offer. Express 1 is being acquired to be part of a roll up process that will consolidate a number of companies in the transportation sector in a more efficient operation with just one set of management. More trucking companies will be acquired in this manner as the prospects of the industry begin to brighten
Jonathan Yates is a paid contributor of the SmallCap Network. Jonathan Yates's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
