Is ArcBest Corporation (ARCB) a Hidden Gem in the Logistics Sector?

The U.S. trucking market continues to face significant challenges, as highlighted by the US Bank Freight Payment Index for the fiscal 2024 first quarter. The report revealed a sustained decline in shipment volumes and freight spending, underscoring the sector's difficulties.

Shipment volumes decreased 7.8% from the previous quarter and 21.6% year-over-year. Similarly, freight spending fell 16.8% from the fourth quarter of 2023 and 27.9% from the first quarter of 2023.

Bobby Holland, Director of Freight Business Analytics at US Bank, emphasized that this trend marked the eighth consecutive quarter of volume declines and the fifth quarter of reduced spending.

Even now, the freight recession shows no signs of ending, continuing to reshape industry dynamics. Experts remain uncertain about the timing of a potential recovery, with the second quarter also offering little optimism for improvement.

Compounding the problem, the AFS Logistics and TD Cowen freight index report indicates that truckload rates per mile have declined for the fifth consecutive quarter, with expectations for further decreases.

The root cause is an imbalance between supply and demand. The rapid expansion of trucking capacity during the COVID-19 surge now clashes with reduced consumer spending due to high interest rates, leaving the industry with excess capacity.

In this challenging environment, let us asses whether ArcBest Corporation (ARCB) could emerge as a potential hidden gem. With a market capitalization of $2.95 billion, ARCB is a leading logistics company that leverages advanced technology and a broad suite of solutions to address supply chain needs.

ARCB operates through two main segments: Asset-Based, which includes ABF Freight System, Inc. and related subsidiaries, and Asset-Light, featuring MoLo Solutions, LLC, Panther, and other affiliates.

Shares of ARCB have demonstrated resilience, growing 5.8% over the past six months and 19.4% over the past month, closing the last trading session at $126.05. Now, let us look at the factors that could influence ARCB’s performance in the near term.

Recent Developments 

On March 18, ARCB announced a collaboration with NVIDIA Corporation (NVDA), integrating the NVIDIA Isaac Perceptor platform into its material-handling processes. By employing cutting-edge machine vision technology, the partnership will enhance safety and efficiency across warehouses, distribution centers, and manufacturing facilities.

By incorporating NVDA's Isaac Perceptor into its Vaux Smart Autonomy™ autonomous forklifts and reach trucks, ARCB is advancing its capabilities. The Isaac Perceptor's 3D-surround perception allows robots to recognize objects better, track human motion, and make informed decisions, optimizing operations for greater safety and flexibility.

This move builds on ARCB's earlier innovation. On February 13, ARCB unveiled the Vaux Smart Autonomy suite, which combines autonomous mobile robot (AMR) forklifts, intelligent software, and remote teleoperation. The technology autonomously manages material movement within facilities while keeping human oversight, offering unprecedented flexibility and efficiency.

Vaux Smart Autonomy is distinct in the market for its adaptability to various facility and product characteristics. These innovations not only position ARCB at the forefront of logistics technology but also open new avenues for scaling operations and enhancing market competitiveness.

Impressive Historical Growth

Over the past five years, ARCB’s revenue has grown at a CAGR of 7%. Its net income and EPS have grown at a CAGR of 14.4% and 16.7%, respectively. In addition, the company’s total assets rose at a CAGR of 8.6% over the same timeframe. Moreover, the company’s EBITDA increased at a CAGR of 8% during the same period.

Disappointing Financials

ARCB’s revenue decreased 6.3% year-over-year to $1.04 billion for the first quarter that ended on March 31, 2024. Its non-GAAP operating income from continuing operations decreased 17.8% from the year-ago value to $42.65 million. The company’s consolidated adjusted EBITDA from continuing operations also stood at $73.33 million, down 6.1% year-over-year.

ARCB also reported non-GAAP net income and non-GAAP EPS from continuing operations of $32.32 million and $1.34, down 18.1% and 15.2% year over year, respectively. As of March 31, 2024, ARCB’s cash and cash equivalents amounted to $172.86 million, compared to $262.23 million as of December 31, 2023.

Mixed Analyst Estimates

For the fiscal 2024 second quarter that ended in June, analysts expect ARCB’s revenue to decrease 4.2% year-over-year to $1.06 billion. Analysts expect the company’s EPS to increase 33.8% year-over-year to $2.06 for the same quarter.

Additionally, the company’s revenue for the current fiscal year (ending December 2024) is expected to decrease 2.7% year-over-year to $4.31 billion, while its EPS for the same period is expected to increase by 3.7% from the prior year to $8.17.

Furthermore, for the next fiscal year ending in December 2025, Street expects ARCB’s revenue and EPS to increase 7.3% and 32.6% from the previous year to $4.62 billion and $10.84, respectively.

Discounted Valuation

Regarding forward non-GAAP P/E, ARCB is trading at 15.42x, 22% lower than the industry average of 19.77x. Its forward EV/Sales multiple of 0.73 is 61% lower than the industry average of 1.86. Likewise, its forward EV/EBITDA of 7.85x is 33.4% lower than the industry average of 11.80x.

Additionally, the stock’s forward Price/Sales multiple of 0.69 is 55.4% lower than the industry average of 1.54x, and its forward Price/Cash Flow of 9.96x is 30.5% lower than the industry average of 14.34x.

Mixed Profitability

ARCB’s trailing-12-month gross profit margin of 9.16% is 70.7% lower than the 31.21% industry average. Also, its trailing-12-month EBITDA margin of 7.69% is 43.8% lower than the industry average of 13.68%. Similarly, its trailing-12-month levered FCF margin of negative 0.44% compares with the industry average of 6.49%.

However, its trailing-12-month return on total assets (ROTA) of 5.17% is 5.4% higher than the industry average of 4.91%. Moreover, its trailing-12-month asset turnover ratio of 1.82x is 133.8% higher than the industry average of 0.78x.

POWR Ratings Reflect Uncertainty

ARCB’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ARCB has a B grade in Value, which aligns with its lower-than-industry valuation. It also has a C grade for Quality, justified by its mixed profitability metrics.

Further, ARCB has a C grade for Stability, in sync with its 60-month beta of 1.48. Within the Trucking Freight industry, ARCB is ranked #7 out of 17 stocks. Beyond what I have stated above, we have also given ARCB grades for Growth, Momentum, and Sentiment. Get all ARCB ratings here.

Bottom Line

Despite ongoing difficulties in the U.S. trucking industry, such as declining shipment volumes and freight spending, ARCB is positioning itself for long-term growth. The company’s recent collaboration and innovations highlight its drive to lead in logistics technology.

These strategic moves could set the stage for significant future growth. However, given the poor performance in the last reported quarter, mixed analyst estimates, mixed profitability, and high stock volatility, waiting for a more opportune entry point might be prudent.

How Does ArcBest Corporation (ARCB) Stack Up Against Its Peers?

Given its current uncertain prospects, the odds of ARCB outperforming in the weeks ahead seem compromised. However, other industry peers have much more impressive POWR Ratings.

So, consider these three B (Buy) stocks from the Air Freight & Shipping Services industry: FedEx Corporation (FDX), AerCap Holdings N.V. (AER) and Universal Logistics Holdings, Inc. (ULH). To explore more B-rated Air Freight & Shipping Services stocks, click here.

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ARCB shares were unchanged in premarket trading Thursday. Year-to-date, ARCB has gained 5.06%, versus a 16.62% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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