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WALL STREET, CALIFORNIA | SECTOR SPOTLIGHT / JAMES
F. PELTZ

Not Even Semi-Attractive

A few trucking stocks show promise, analysts say, but most can't be expected to deliver. And for the longer term, the industry's outlook is mixed.

January 28, 1997|JAMES F. PELTZ

The trucking industry, with few exceptions, took investors on a hair-raising journey during the last year, and analysts see a bumpy ride for the stocks again in 1997.

As the overall stock market climbed to new highs in 1996, shares of several major truckers went in the opposite direction as the companies' already weak earnings came under added pressure from rising diesel-fuel prices.

As a result, truckers had one of the worst showings of the nearly 100 industry groups tracked by Dow Jones & Co., with a 10.6% decline last year. The Standard & Poor's 500 index, by contrast, posted a 20.3% gain for the year.

Conditions in the trucking industry have slowly improved in recent months, however, and that's pushed a handful of the stocks higher on expectations that their upcoming earnings will easily surpass their depressed year-earlier levels.

At least three trucking stocks were trading near their 52-week highs recently: Swift Transportation Co. (ticker symbol: SWFT), Roadway Express Inc. (ROAD) and Yellow Corp. (YELL). But that's not saying much: Many of the stocks are still well below their levels of two or three years ago. Yellow, for instance, now trades at $17 a share, compared with $25 in early 1994.

Wall Street analysts aren't too wild about the outlook for trucking stocks during 1997 either, although they do have a few selected favorites.

Investors "can find more attractive investments elsewhere," Value Line Investment Survey analyst Paul Debbas concluded in his most recent report. At Donaldson, Lufkin & Jenrette Inc., none of the truckers followed by analyst Paul Schlesinger is on his firm's recommended list.

The trucking industry has struggled for several years now. There has been excess capacity--or too many trucks chasing the number of goods that need shipping--and that has led to repeated price-cutting and profit erosion among the competitors.

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In the last year, demand for the truckers' services has gradually improved, and that has led to some attempts by the truckers to hold prices firm or even to raise them. American Freightways Corp. (AFWY), for instance, imposed a 5.9% rate increase Jan. 1, and since then its stock has climbed to $12.75 a share from $11.

But analysts predict that those price increases will quickly vanish if the economy shows any slowdown this year and shippers' demand for trucking subsides.

Indeed, the longer-term outlook for the trucking industry is mixed. Despite competition from the railroads and air-cargo firms, the truckers should enjoy enough demand from shippers to remain profitable--if they can keep their costs down, analysts said.

Truckers tend to compete more against one another than against railroads and air-cargo firms, because they avoid focusing on traffic lanes where they know those rivals have a cost advantage, Debbas said.

In fact, the growing use of "intermodal" transport--whereby cargo is moved in containers that can be put aboard ships, trains or trucks--will increasingly make trucks and railroads effective partners in transportation and thus benefit the truckers, he said.

But rising costs are offsetting those benefits. Drivers' wages and benefits are on the rise, and many trucking firms struggle with recurring driver shortages that can force them to idle up to 5% of their fleets at certain times, analysts said.

Truckers also are grappling with the surge in diesel-fuel prices. Between last January and October, the average retail price of diesel surged 16% to a peak of $1.33 a gallon; it now stands at about $1.29 a gallon.

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Nonetheless, analysts said, a few trucking stocks are worth investors' notice.

Among their picks is Swift Transportation, based in Phoenix. The stock, trading around $26, recently had "strong buy" recommendations from no fewer than three investment firms: Morgan Stanley & Co., Salomon Bros. and Alex. Brown & Sons Inc.

Swift is well-managed and enjoying steady growth, and its business is particularly robust in the Pacific Northwest, where it's a major hauler of paper products, Morgan Stanley analyst Andras Petery said in a new report. He's also projecting a 24% jump in Swift's 1997 earnings, to $1.30 a share.

Werner Enterprises Inc. (WERN), an Omaha-based carrier, is a favorite of analyst James Valentine at Salomon Bros. The stock, currently trading around $17.75 a share, has moved up from $14 during the past year, and Valentine said Werner should continue gaining as it posts stronger profits despite higher fuel costs.

Finally, is there one trucker that perhaps Wall Street is overlooking? Well, consider Smithway Motor Xpress Corp. (SMXC), which went public last July at $8.50 a share and now trades around $9.

Of the 57 trucking firms followed by the research firm Market Guide Inc., Smithway had one of highest pretax profit margins for the previous 12 months, nearly 9 cents per dollar of sales.

Yet Smithway also had the group's lowest stock price-to-earnings multiple on its trailing 12-month profit, at 9.5. On the same list, Swift Transportation had virtually the same profit margin--yet its stock was carrying a multiple of 28.

Times staff writer James F. Peltz can be reached at james.peltz@latimes.com

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bumpy Ride

Trucking stocks generally performed poorly last year, and analysts see only a few prospering in 1997. A look at some of the industry's major stocks:

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Ticker Recent '96 % Stock symbol price change Arkansas ABFS $4.50 --44% Best Caliber CBB 20.50 --54 System J.B. Hunt JBHT 14.25 --16 Transport M.S. MSCA 16.25 --20 Carriers Roadway ROAD 21.00 +14 Express Swift SWFT 26.00 +54 Transportation Standard & Poor's 500 +20

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