President Trump’s widely watched State of Union address made it clear that the current administration’s top priority for the moment is infrastructure. Trump’s call to “rebuild our crumbling infrastructure” is probably one of the few issues which, at least in principle, will be welcomed by legislators across the board.
One of the immediate beneficiaries of this massive push for infrastructure is likely to be the transportation sector. The sector is also likely to gain from a vibrant U.S. economy and the Tax Cuts and Job Act of 2017.
Also, the Trump administration introduced the ELD Mandate late last year that is likely to have a positive impact on the sector. Specialized segments such as less-than-truckload operators are also slated to mop up gains in 2018. Overall, this year looks to be a good time to invest in transportation stocks.
Infrastructure, Strong Economy, Tax Cuts Push to Boost Sector
In his first State of Union address, President Trump asked Congress to support a $1.5-trillion package to improve U.S. infrastructure. Trump called for funding from state and local governments and welcomed the entry of private investment. Crucial for the success of the legislation is the proposal to reduce approval times for building permits to two years, he said.
Though such a massive infrastructure plan will have widespread impact on all sectors, one of its immediate beneficiaries will be the transportation sector. Gains are likely to come in the form of increased safety and speed and also through a reduction in costs.
Meanwhile, a strong U.S. economy and recent tax cuts will also provide a fillip to the sector. According to industry experts, both individual consumers and businesses will step up spending which will lead to greater freight movement. Truck equipment suppliers could also benefit as a result. Additionally, tax cuts will lift carrier finances leading to higher spending on equipment and employees.
Can the ELD Mandate Hurt the Freight Industry?
Late in December 2017, the Trump administration implemented the electronic logging device (ELD) mandate. Per this mandate, all trucks will to have install electronic logging devices in order for drivers to track their working hours. This regulation is aimed at increased road safety for drivers by monitoring their working hours. Legally, drivers can work for at most 55 hours every week, but this has seldom been enforced.
According to a study conducted by the Department of Transportation, the ELD Mandate will lead to cost savings of $1.7 billion. Further, the number of trucking accidents is likely to be reduced by 1,800 per year. ELDs have been used by larger trucking operators for several years with considerable success.
This is why most of the onus to comply will fall on smaller operators. Since the cost per device is likely to be around $600 per vehicle along with additional subscription charges, several smaller operators could quit the industry. Additionally, there could be a shortage of drivers since they will be limited to working 55 hours per week. However, official estimates provide a compelling case for ELDs and this is certainly the way forward.
Less-than-Truckload Segment to Accelerate
Among the segments slated to make major strides in 2018 is the less-than-truckload (LTL) sector, which is worth nearly $36 billion. Factors that are supporting the sector’s growth at this point include steady demand, tight capacity and the niche capability of LTL operators. Additionally, the segment witnesses few new entrants due to stiff initial costs required to mimic carriers’ intricate hub and spoke terminal networks.
Meanwhile, supply chains are getting shorter and the importance of smaller loads is rising. The growth in e-commerce has also created greater business opportunities for LTL operators. A tight TL market has also opened up new avenues for LTL operators. With several TL carrier rejecting loads in the 5,000-10,000 pound category, LTL operators are taking charge of this emerging space.
Our Choices
Several factors are likely to ensure a successful year for the transportation sector. The Trump administration’s infrastructure push is likely to immediately benefit the sector. Further, transportation is also likely to gain from recently announced tax cuts and a strong economy.
Measures like the ELD mandate will also prove to be game changers in the long term. Meanwhile, niche segments like LTL operators are starting the year on a strong footing. Taken together, these factors ensure that transportation stocks remain a strong investment option in 2018.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Forward Air Corporation FWRD is a leading provider of ground transportation and related logistics services to the North American air freight and expedited LTL market.
Forward Air has beaten the Zacks Consensus Estimate in all of the last four quarters with an average positive earnings surprise of 8.5%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +0.08% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Forward Air in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Feb 7.
Textainer Group Holdings Limited TGH is the world’s largest lessor of intermodal containers with a total fleet of more than 1.3 million containers
Powered with the right combination of the two key ingredients – an Earnings ESP of +11.21% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Textainer Group Holdings in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Feb 15.
Saia, Inc. SAIA is a leading multi-regional LTL carrier.
Saia has beaten the Zacks Consensus Estimate in two of the last four quarters with an average positive earnings surprise of 2.1%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +0.63% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Saia in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Feb 2.
Old Dominion Freight Line, Inc. ODFL is a leading, less-than-truckload, union-free company providing super-regional and national LTL services.
Old Dominion Freight Line has beaten the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 3.7%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +0.08% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Old Dominion Freight Line in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Feb 8.
Hub Group, Inc. HUBG is a transportation management company that provides multi-modal solutions throughout North America, including intermodal, truck brokerage, dedicated and logistics services.
Hub Group has beaten the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 8.1%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +2.93% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Hub Group in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Feb 8.
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