One company’s pain can be others’ gain. That’s the case with the folding of less-than-truckload shipper Yellow, which filed for Chapter 11 bankruptcy protection on Sunday.
Less-that-truckload shipping, or LTL, typically serves industrial customer, moving goods from sellers to buyers. Yellow, which is shutting down, was a major LTL player, operating almost 13,000 heavy-duty trucks. That’s more than LTL peers
Old Dominion Freight Line
(ticker: ODFL),
XPO
(XPO)
Saia
(SAIA), and
ArcBest
(ARCB).
FedEx
Ground, which also offers LTL services, operates some 25,000 heavy-duty trucks. FedEx (FDX), of course, is a diversified logistics provider.
If Yellow doesn’t operate, the freight it once carried has to go somewhere. The list of peers is the place to look for potential beneficiaries. Investors have been paying attention, so coming into Monday’s trading session, stocks of the four LTL peers and FedEx had gained about 15%, on average, over the past month. The
S&P 500
was up closer to 2% over the same span.
More gains could be coming, but investors need to pay attention and be selective given those moves higher. Monday, Evercore ISI analyst Jonathan Chappell took his price target for XPO shares to $72 from $56, partly because the company reported per-share earnings of 71 cents on Friday. Wall Street was looking for 61 cents.
Yellow was another reason. Industry trends “amid vast disruption associated with the likely liquidation of a major competitor [Yellow]” are looking better, wrote the analyst, who rates XPO stock at Hold.
Overall, Wall Street is a little more bullish, with 60% of analysts who cover the company rating shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for XPO stock is about $74, while the shares were at $72.12 on Monday morning.
Some other LTL peers appear to offer similarly little upside. About 53% of analysts covering Saia stock rate shares Buy, while the average price target is about $441 and the stock is trading at about $428.
About 29% of analysts rate Old Dominion shares at Buy. The average target for the price is about $411, roughly $1 above where shares are trading.
FedEx is more diversified, but the setup is similar to Old Dominion’s and Saia’s. About 59% of analysts covering the stock rate the shares at Buy, but the average price target is about $265. The stock is trading at roughly $264.
The story for ArcBest, rated at Buy by 64% of analysts, is a little different. The average price target is $136, implying a potential gain of 17% from the current price of about $116.
Another point to look at is the companies’ indebtedness relative to their earnings, given that Yellow was ultimately undone by high debt and pension costs. Its total debt was about 5.6 times the earnings before interest, taxes, depreciation, and amortization recorded over the past 12 months, while the comparable figure for the S&P 500 is about two times, according to FactSet.
Old Dominion and Saia don’t have much debt at all. ArcBest’s ratio is a comfortable 1.1 times. XPO and FedEx are higher, at three times and four times, respectively.
Yellow generated Ebitda profit margins of roughly 5% over the past 12 months, but the others look better. ArcBest and FedEx generated roughly 8% and 11%, respectively. XPO’s Ebitda profit margin over the past year is about 12%. Saia and Old Dominion came in at 22% and 34%, respectively.
Higher profit margins, and higher profit margins than peers, are signs of a healthy business.
ArcBest might look the best based on current price targets, but Wall Street could become more upbeat about the sector in general. Price targets for the other companies could go higher as Wall Street works through all the implications of Yellow’s troubles.
Write to Al Root at [email protected]
Read the full article here
