Though most small cap stocks are up this week, trucking and transportation stocks like
Arkansas Best Corporation (
NASDAQ:ABFS),
Knight Transportation Inc. (
NYSE:KNX), and
Old Dominion Freight Line Inc. (
NASDAQ:ODFL) have been losing value along with the rest of the small caps in the trucking industry. It seems investors are likely looking at an anemic ATA tonnage index as the backdrop for overpriced trucking stocks, and deciding to invest elsewhere.
In May (June's data is not posted yet), the American Trucking Association's "For-Hire" Truck Tonnage Index was up 3.2 percent after declining in March and April. All told though, demand for shipping has hardly recovered back to pre-recession levels; it's not even back to January's levels.
And, the recent performance from truckling companies reflects that lingering soft patch. The nearby fundamental performance (past and projected) table for Arkansas Best, Knight Transportation, and Old Dominion,
Forward Air Corporation (
NASDAQ:FWRD), and
Heartland Express, Inc. (
NASDAQ:HTLD) doesn't exactly paint a rosy picture for the small cap stocks in the transportation industry.
A trailing twelve-month P/E of 20.14 is just mediocre at best, while the forward-looking P/E of 30.4 is particularly troubling knowing that analysts are generally too optimistic, if anything. Profit margins aren't all that great either.
As for their own outlooks, these companies aren't much more optimistic than the analysts following them. When Heartland reported earnings a couple of days ago, the news release also stated that an excess supply of shipping services existed; the point was made even though Heartland's Q2 profits were slightly higher.
Competitor JB Hunt's CEO Kirk Thompson also acknowledged that weaker demand could crimp margins for quite some time.
Clearly Heartland stands out among its peers. Aside from the modest increase in earnings, last quarter, its margins have remained healthy, and its shares are the most-attractively priced among the small caps in the group. However, Knight Transportation may be a stealth and profitable runner-up.
Knight focuses strictly on short and medium length hauls, and it will only operate in select freight lanes -
the busiest ones, of course. The company also only works near its existing service centers. The practice may limit the top line, but the bottom line benefits.
Even so, both stocks are in the red today, as the
S&P 600 Small Cap Trucking Index has been for the last two weeks. After peaking in early June, the chart of this small cap trucking index has lost more ground than the vast majority of industry indices. A move under 420 could further fan the selling flames for all small cap trucking stocks.
Forward Air will host its earnings conference call on July 21st. Arkansas Best's earnings call for its second quarter will be on July 22nd.
