Since the onset of the COVID-19 pandemic, strong demand for freight transport has allowed trucking companies to generate substantial revenues. While high demand amid the current supply disruptions has led to high trucking rates, the rates are attracting more supply, increasing the possibility of an oversupply. Furthermore, the prospect of the U.S. economy suffering a recession due to aggressive interest rate hikes and rising geopolitical tensions do not bode well for trucking companies.
While the spring season is usually a busy period for trucking companies as retailers stock up inventory for the summer, the current slump in consumer demand and fears of an economic downturn could hurt trucking companies. Analysts have also downgraded many trucking stocks on this scenario.
So, we think fundamentally weak trucking stocks Old Dominion Freight Line, Inc. (ODFL), XPO Logistics, Inc. (XPO), and Yellow Corporation (YELL) could witness a downtrend in the near term. So, these stocks are best avoided now.
Old Dominion Freight Line, Inc. (ODFL)
ODFL in Thomasville, N.C., operates as a less-than-truckload (LTL) motor carrier that provides regional, inter-regional, and national LTL services, including expedited transportation. The company also offers various value-added services, including container drayage, truckload brokerage, and supply chain consulting. Its system allows access to information, such as freight tracking, shipping documents, rate quotes, rate databases, and account activity.
ODFL opened new or improved service center facilities in seven cities in the fourth quarter of 2021 and the first quarter of 2022. This move reinforces the LTL carriers’ commitment to operational excellence and building network capacity.
As of March 31, 2022, the company had $262.12 million in cash and cash equivalents, down 76.5% from its fiscal 2021. The stock has declined 18.5% in price year-to-date and ended yesterday’s trading session at $292.26.
ODFL’s POWR Ratings reflect this bleak outlook. ODFL has a D grade for Value and a C grade for Stability and Sentiment. Click here to see the additional ratings for ODFL’s Quality, Momentum, and Growth. Among the 22 stocks in the A-rated Trucking Freight industry, ODFL is ranked #13.
XPO Logistics, Inc. (XPO)
XPO in Greenwich, Conn., provides freight transportation services through North American LTL; and Brokerage and Other Services segments internationally. The company uses its technology, including the XPO Connect automated freight marketplace, to move goods through its customers’ supply chains, primarily by providing less-than-truckload (LTL) and truck brokerage services. It provides its services to customers in various industries, including industrial and manufacturing, retail and e-commerce, food and beverage, logistics and transportation, and consumer goods.
On April 18, 2022, XPO announced the further expansion of its North American LTL network with the coming opening of two less-than-truckload (LTL) terminals in the Adelanto, Calif., terminal and the Conley, Ga., terminal. Given the rising demand for LTL carriers from manufacturing and retail expansion, the expansion of this network should help XPOdrive efficiency, growth, and returns.
As of December 31, 2021, XPO had $260 million in cash and cash equivalents, down 85% from fiscal 2020 ended Dec. 31, 2020. The stock has declined 27.6% in price year-to-date and ended yesterday’s trading session at $56.05.
XPO’s weak fundamentals are reflected in its POWR Ratings. XPO has a D grade for Growth and Stability and a C grade for Sentiment, Quality, and Momentum. Click here to see additional ratings for XPO’s Value. XPO is ranked #16 in the Trucking Freight industry.
Yellow Corporation (YELL)
YELL in Overland Park, Kans., provides various transportation services, primarily less-than-truckload (LTL) shipments and supply chain solutions to transport industrial, commercial, and retail goods. The company also provides customer-specific logistics solutions, including truckload, residential, and warehouse solutions, as well as ships other manufactured products or components. In addition, it offers guaranteed expedited, time-specific delivery, product return and government material shipment services, consolidation and distribution, reverse logistics, and residential white glove services.
On Dec. 13, 2021, YELL’s custom logistics brokerage, Yellow Logistics, announced plans to expand its retail pool distribution with a new facility in Mesquite, Tex. While providing both cost and service benefits to the customer, the Yellow Logistics pool distribution program will also reduce lead times to the retailer’s e-commerce and store network supply chains. Enhanced custom freight solutions and retail pool distribution services should help YELL gain wide reach in the coming months.
For its fiscal 2021 fourth quarter ended Dec. 31, 2021, YELL’s pre-tax loss came in at $42.80 million, representing a 119.5% decline from the prior-year period. The company’s comprehensive loss was $58.60 million, compared to $99.30 million in income in the prior-year period. Its loss per share grew 137.8% year-over-year to $0.88.
The company had $310.70 million in cash and cash equivalents as of Dec.31, 2021, down 29.3% from the end of fiscal 2020. The stock has declined 63.6% in price year-to-date and ended yesterday’s trading session at $4.58.
The stock’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
YELL has a D grade for Quality and Sentiment and a C grade for Value and Stability. Click here to see the additional ratings for YELL’s Momentum and Growth. YELL is ranked #19 in the Trucking Freight industry.
ODFL shares were trading at $283.76 per share on Friday afternoon, down $8.50 (-2.91%). Year-to-date, ODFL has declined -20.75%, versus a -12.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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