Truckers' Valuations Overheating
Even with pricing power in high gear, we'd hit the brakes.
Following almost two years of anemic pricing, the truckload, or TL, shipping landscape saw a remarkable recovery in the second half of 2017. Capacity has rapidly tightened on accelerating freight demand, carriers’ fleet reductions, and weather disruptions. Highly constrained supply is driving a resurgence in TL carriers’ pricing power; spot rates have rebounded to record levels and contract pricing won’t be far behind. We expect TL capacity to stay firm this year on the back of widespread adoption of electronic logging devices, or ELDs, and the limited driver pool, enabling top-tier TL carriers to capitalize on an unusually strong pricing backdrop. Less-than-truckload, or LTL, carriers should also see healthy rate gains with help from spillover freight from the supply-constrained TL sector.
That said, throughout 2017, stock prices across the trucking space surged as spot rates spiked and optimism grew regarding U.S. tax reform. TL and LTL valuations have become quite lofty and remain so despite the pullback in March. We think the market is extrapolating carriers’ strong operating performance too far into the future. We’ve seen this before--trucking valuations spiked during the 2014 capacity crunch but spent 2015 falling back down to earth as demand and pricing softened and reality set in. We would sell or avoid overvalued asset-based TL and LTL stocks despite the prospect of robust pricing conditions throughout 2018.
Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.