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Trucking on road to recovery
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November 3, 1997: 5:05 p.m. ET
Despite sell-off in shares, analysts say industry fundamentals remain sound
By Correspondent Charles Molineaux
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NEW YORK (CNNfn) - The trucking industry was finally enjoying a recovery. Earnings were rising where they had once lagged behind the rest of the economy. Demand was high, and new growth finally seemed to be in reach.
However, when the October correction swept Wall Street, it pummeled what had been a hard-won revival of the trucking sector. The Monday crest of the correction saw the S&P Trucking Index fall 70 points -- 13 percent of its total value - in a single day.
Despite the recent setback, analysts say the foundations of the trucking sector are still strong and worth investor attention.
"Look at the industry supply," explains Jeffrey Kauffman, transportation analyst at Merrill Lynch. "Supply and demand are in good balance. Pricing's in good balance. So fundamentally the story's still the same. I just think people aren't paying as much for that story given their nervousness."
When the sell-off struck, trucking stocks were enjoying the benefits of months of improvements as the industry benefited from cost-cutting. The economy had grown faster than trucking capacity, boosting prices and profits. Trucking companies reported third- quarter earnings up 20 to 50 percent up from last year's figures, and the S&P Truck Index was up 187 percent on the year.
Now, analysts say that many truck stocks are at bargain prices. CNF Transportation (CNF), for example, just signed a contract to carry mail for the postal service, but its shares lost 10 percent. US Freightways (USFC) and Yellow (YELL) had both enjoyed good runs in the past, but their shares dropped more than 20 percent during the correction. All are considered undervalued bargains.
Problems at Union Pacific Railroad and the UPS strike in August also created turmoil that could continue to send trucking earnings "up" well into next year
Analysts say even continued uncertainty in the Far East would only increase import shipping volume.
"They don't have [transportation] assets over there," notes Otto Grotte, chairman of Derby Securities. "In fact, I would even go further to say that the truckers are likely to benefit from the Asian problem."
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