The trucking industry is a vital component to the American way of life, and an economic recovery means major revenue growth. Despite its importance, however, many investors overlook these stocks due to their dull nature. This creates a major opportunity for those who see the huge upside potential in the trucking business.
Con-way Inc (NYSE:CNW) specializes in moving small shipments and is the third-largest company in the less-than-truckload carrying business. The firm moves small shipments to customers on a same-day basis. Shipments average about 1,000 pounds in this segment, rather than the 20,000 pounds normally associated with the truckload segment.
The firm has managed to increase its yields over the past several years as a result of disciplined pricing and renewed contracts. The improved customer base could position Con-way Inc (NYSE:CNW) aggressively against major competitors like FedEx Corporation (NYSE:FDX).
Yield gains will likely improve the company’s profitability; however, it is hindered by the potential wage and benefits inflation. Equipment costs could also curse the company’s profits. However, contract renewals are being written at increased rates, due to the industry’s tightening capacity. That will allow Con-way Inc (NYSE:CNW) to realize greater revenue and profit margins, and should make the firm very attractive to investors.
J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) boasts a high concentration of intermodal services, decreasing the firm’s vulnerability to cyclical downturns in relation to others in the transportation business that focus their attention on asset-based trucking.
This diversification has allowed the company to be a one-stop location for those wanting to ship. The firm’s truckload segment is one of the industry’s largest carriers, and the for-hire truckload industry is valued at about $300 billion. Furthermore, the company has a more manageable cost structure as a result, as the number of tractors it owns is about half of its 2002 total.
Knight has a high operating ratio
Knight Transportation (NYSE:KNX) has one of the best operating ratios in the business, staying at about 83% over the past decade. I like the way the company has been diversifying its dry-van operations. In 2004, the firm launched a refrigeration division, then launched its freight brokerage in 2005. In 2008, it launched its port drayage, and in 2010, it launched its rail intermodal services. This steady growth has resulted in increased revenue. In fact, the company is nearing the $1 billion mark in annual revenue. It generated $936 million last year, compared to $652 million in 2009.
The new operations are still relatively small, and that represents major growth opportunities for the company. As the firm realizes maximum efficiency and growth in these segments, revenue will continue to grow at a staggering pace. This will allow those who invested in the company before its full capacity is realized to bask in the profits. Furthermore, the relatively young nature of these segments shows that the company will likely be able to increase its operational efficiencies, and that means a greater profit margin in the long run.
Trucking correlates with general economy
The trucking industry clearly has improving fundamentals, so if you are bullish on the economy then trucking companies could be right for you. I consider all three of these companies to be buys, but the contract renewal and price increase at Con-way Inc (NYSE:CNW) has me leaning towards that company’s stock. The network optimization and the increased price that the firm can gain from clients will position it to profit in the years ahead. Buying shares of the company now will allow your capital gains to accrue along with the firm’s growth. Con-way Inc (NYSE:CNW) looks determined to increase its less-than-truckload capacity, and as this is a segment that can generate huge profits it could take the firm to the next level.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Economic Recovery Means Huge Profits for Trucking Companies originally appeared on Fool.com is written by Phillip Woolgar.
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