Bank of America Gets Bullish On Trucking

The Tides Are Turning

It was only a quarter ago that warnings from truckers and analysts alike sent the entire complex moving lower. Now, a quarter later, the tides are turning as economic rebounding gets underway. Bank of America issued it’s 2nd half trucking outlook to investors just the other day highlighting an “inflecting volume and rate environment”. What they mean is, the bottom may be in now that shipping volumes and rates are on the rise.

"Our proprietary bi-weekly BofA Truck Shipper Survey Rate Indicator (measuring shippers’ views on the direction of truck rates) is at 54, up 12% sequentially and double its trough, suggesting pricing expectations continue to accelerate. With our Demand Indicator (0-3 month demand outlook), posting its largest positive year-year change since June 2018, coupled with our Capacity Indicator declining to 52 from 67, its lowest level since November 2018, we see the building blocks in place for spot rates to keep rising into 2H."

Who To Focus On In The Second Half

Within the Truckload category, BoA sees buy-rated Knight-Swift Transportation (NYSE: KNX) and Werner Enterprises (NASDAQ: WERN) as the best choices. Within the less-than-truckload category, ArcBest (NASDAQ: ARCB) and XPO Logistics (NYSE: XPO) are the top choices. TFI International (NYSE: TFII)  makes the cut for the long-haul category.

Baird recently added Knight-Swift to its Bullish Fresh Pick list. Analysts at the firm expect the Q2 results to come in better than consensus due to trends within the industry. They also favor the longer-term view taking a similar stance to BoA. “We also continue to like quality asset-based truckload carriers during US recessionary periods and believe bottoming fundamentals presents KNX a catalyst”

The company is slated to report earnings on July 21st and could create quite a stir when it does. The stocks short interest is running in the 25% range setting up a massive short-squeeze when the company beats its targets. The Greenbrier Companies, a not wholly-dissimilar company making freight cars and wheels for trains, just sparked its own short-squeeze a few days ago. XPO Logistics also has a fairly high short interest, about 10%, so it could trigger a short-squeeze when it reports later this month too.

Investors looking for growth and yield may be interested in TFI International. The Canadian-based outfit yields close to 2.0%, the highest in this bunch, and is actively growing. The company announced two major acquisitions just this month that promise to boost revenues over the coming quarters. The first is privately-held Gusgo Transport. Gusgo was targeted for its position within the intermodal/container shipping segment and related assets. The second is MCT Transportation. MCT Transportation was picked up at rock-bottom prices during a distress sale and part of TFI’s growing presence in the U.S.

The Technical Outlook: The Transports Look Bullish To Me

With the bulk of the transportation sector slated to report earnings over the next two weeks the Dow Jones Transportation Average looks pretty bullish. The index is moving up from support at the short-term moving average and that move is confirmed by bullish crossovers in the MACD and stochastic. I think it safe to assume a move to retest the recent high near 10,100 is coming but more than that will depend on earnings and outlook.

Regarding the trucking industry, JB Hunt (NASDAQ: JBHT) may be the bellwether that gets this market moving. JB Hunt is set to report earnings after the bell today and the outlook is not good. The company is expected to see EPS fall -30%, revenue -10.6%, but that is not what will move the market. There is a growing chance that JB Hunt will beat consensus if not blow past it and confirm a bottom within the industry. If JB Hunt also confirms the double-tailwind of rising rates and volumes the rebound in trucking stocks is all but certain.