FWRD Stock Study (5-18-23)

I recently did a stock study on Forward Air Corp. (FWRD) with a closing price of $97.00. My original study is here.

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-size 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 [see second-to-last paragraph]. Lines are mostly up and parallel except for sales decline in ’20 and, in addition to the dips just mentioned, EPS dips in ’15 and ’19. PTPM has led peer and industry averages over the last 10 years, ranging from 5.5% (’20) to 13.2% (’22) with a last-5-year average of 9.1%.

ROE has trailed peer and industry averages despite trending higher over the past decade from 12.9% in ’13 to 27.8% in ’22 with a last-5-year average of 17.8%. Debt-to-Capital has been lower than peer and industry averages, going from 0% in ’13 to 28.2% in ’22 with a last-5-year average of 26.0%.

Despite Interest Coverage of 38.6 and Quick Ratio at 1.41, Value Line rates the company B++ for Financial Strength.

I forecast flat long-term sales growth based on the following:

• CNN Business projects contraction of 10.0% YOY and 2.5% per year for ’23 and ’22-’24 (based on 6 analysts).
• YF projects YOY 7.5% contraction and 4.7% growth for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 7.6% contraction and 3.4% growth for ’23 and ’24, respectively (3).
• Value Line projects 0.3% annualized growth from ’22-’27.
• CFRA projects contraction of 7.5% YOY and 1.4% per year for ’23 and ’22-’24, respectively (6).

I am forecasting in line with the only long-term estimate.

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

• CNN Business projects contraction of 20.3% YOY and 4.5% per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 8.0%.
• MarketWatch projects contraction of 23.3% YOY and 6.3% per year for ’23 and ’22-’24, respectively (8 analysts).
• Nasdaq.com projects growth of 13.9% YOY for ’24 (3).
• Seeking Alpha projects 4-year annualized growth of 8.0%.
• YF projects YOY 19.5% contraction and 14.7% growth for ’23 and ’24, respectively (7), along with 5-year annualized growth of 13.2%.
• Zacks projects YOY 17.6% contraction and 13.9% growth for ’23 and ’24, respectively (3).
• Value Line projects annualized contraction of 2.0% from ’22-’27.
• CFRA projects contraction of 18.3% YOY and 3.6% per year for ’23 and ’22-’24, respectively (8).

I am forecasting conservatively toward the bottom of the long-term-estimate range (mean of four: 6.8%).

My Forecast High P/E is 19. 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 forecast.

My Forecast Low P/E is 11. Low P/E has 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 forecasting conservatively below the entire range.

My Low Stock Price Forecast (LSPF) is the default value of $76.30. This is 21.3% less than the previous close and 9.2% less than the 52-week low.

Over the last 10 years, the lowest Payout Ratio was 13.4% in ’22 and the last-5-year average is 23.4%. I am conservatively forecasting at 13.0%.

These inputs land FWRD in the HOLD zone with an U/D ratio of 2.3. Total Annualized Return (TAR) is 9.1%.

PAR (using Forecast Average—not High—P/E) is 4.3%, which is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 78 studies done in the past 90 days (my study and 24 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.8%, 9.5%, 23.0, 16.8, and 24.9%. I am lower across the board. Value Line’s future average annual P/E of 23.0 is higher than both MS (19.9) and mine (15.0).

With regard to other data, MS high and low EPS are $11.03/share and $3.36/share in contrast to my $7.66 and $6.94. My high EPS is lower due to forecast growth rate. MS low EPS seems unreasonable, though. 12 of 78 MS studies are under $2.00/share. I believe some based this on the ’20 downside outlier of $1.89/share. MS LSPF of $68.80 is 9.8% less than mine, implies a Forecast Low P/E of 20.5 (versus the above-stated 16.8), and is 21.9% greater than the $3.36 * 16.8 = $56.45 default. The latter, especially, suggests either very aggressive zoning or some sort of confusion [perhaps around low EPS].

With a robust MOS behind this study, shares are a BUY under $93. Because I want projected return closer to 15.0%, I will look to re-evaluate this stock under $87/share.