FWRD Stock Study (2-21-23)

I recently did a stock study on Forward Air Corp. (FWRD) with a closing price of $107.39.

M* writes:

     > Forward Air Corp is an asset-light freight and logistics company. The
     > company’s operating segment includes Expedited Freight and Intermodal.
     > It generates maximum revenue from the Expedited Freight segment.
     > Expedited Freight segment operates a comprehensive national network to
     > provide expedited regional, inter-regional and national LTL (less-than-
     > truckload) services. It also offers customers local pick-up and delivery
     > and other services including final mile, truckload, shipment consolidation
     > and deconsolidation, warehousing, customs brokerage, and other handling.

This medium-sized company has grown sales and earnings at annualized rates of 11.5% and 14.9% over the last 10 years, respectively. This excludes sharp EPS dips in ’16 and ’20. Lines are mostly up and parallel except for sales decline in ’20 and, in addition to the EPS dips just mentioned, additional dips in ’15 and ’19. Over the last 10 years, PTPM has ranged from 5.5% (’20) to 13.2% (’22) with a last-5-year average of 9.1%. This beats peer and industry averages.

ROE has trended higher over the last decade from 12.9% in ’13 to 27.8% in ’22 with a last-5-year average of 17.8%. This trails peer and industry averages. Debt-to-Capital has gone from 0% in ’13 to 28.2% in ’22 with a last-5-year average of 26%. This is lower than peer and industry averages.

Despite Interest Coverage of 58 and Quick Ratio at 1.64, Value Line gives FWRD a B++ for Financial Strength. To this analyst, that seems as bit low given Total Debt of $126M and TTM FCF of $199M but hey… I’ve only been doing this for five months.

I forecast long-term annualized sales growth of 2% based on the following:

• CNN Business projects 5% YOY contraction and flat growth for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY 1.6% contraction and 4.7% growth for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 0.5% contraction and 1.8% growth for ’23 and ’24, respectively (3).
• Value Line projects 3.1% annualized growth from ’21-’27.
• CFRA projects 1.6% YOY contraction and 1.8% growth per year for ’23 and ’22-’24, respectively (6).

Given contraction being projected for ’23, I am forecasting low.

I forecast long-term annualized EPS growth of 7% based on the following:

• CNN Business projects 9.2% YOY contraction and 0.3% growth per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 8%.
• MarketWatch projects contraction of 12.7% YOY and 1.7% per year for ’23 and ’22-’24, respectively (9 analysts).
• Nasdaq.com projects annualized growth of 2.4% from ’23-’25 (5).
• Seeking Alpha projects 4-year annualized growth of 8%.
• YF projects YOY 10% contraction and 10.5% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 13.2%.
• Zacks projects YOY 3.3% contraction and 4.9% growth for ’23 and ’24, respectively (3).
• Value Line projects annualized growth of 7.4% from ’21-’27.
• CFRA projects 9.5% YOY contraction and 2.1% growth per year for ’23 and ’22-’24, respectively (8).

I am forecasting conservatively just below the long-term-estimate range [7.4% – 13.2%, mean 8.5%]. Despite the large discrepancy between sales and EPS growth rates, I think the latter impacts this analysis much more than the former.

My Forecast High P/E is 20. High P/E has gone up and down from 25.2 in ’13 to 17.6 in ’22 with a last-5-year average of 27.1. Only the ’22 value is lower than my projection.

My Forecast Low P/E is 11. Low P/E has also gone up and down from 19.9 in ’13 to 11.8 in ’22 with a last-5-year average of 16.7. I am projecting conservatively below the entire range.

My Low Stock Price Forecast is the default value of $78.50. This is 26.9% below the previous close, below the 52-week low of $84, and 9.6% above the ’21 low stock price.

Over the last 10 years, the lowest Payout Ratio was 13.4% in ’22. The last-5-year average is 23.4%. My estimate is toward the lower end of the range at 15%.

These inputs land FWRD in the BUY zone with an U/D ratio of 3.2. The Total Annualized Return (TAR) is 14%, but PAR (using Forecast Average, not High, P/E) is borderline low for me at 8.6%.

To assess margin of safety (MOS) in the study, I compare my inputs with those of Member Sentiment (MS). Out of 90 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 8.2%, 9.2%, 24.5, 16.8, and 26.3%, respectively. I am lower across the board. Value Line projects an average annual P/E of 23, which is higher than MS (20.7) and much higher than me (15.5).

The robust MOS gives me the confidence needed to base my decision on the more aggressive TAR [rather than PAR].

One puzzling detail is the lower Low Stock Price Forecast ($73.23) by MS despite a higher Forecast Low P/E (16.8 vs. 11). Perhaps TTM EPS was significantly different when MS studies were done. This is not indicated in the table.