FWRD Stock Study (8-16-23)

Posted by Mark on September 30, 2023 at 07:10 | Last modified: August 16, 2023 10:53

I recently did a stock study on Forward Air Corp. (FWRD) with a closing price of $67.44. Previous studies are here and 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.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 11.5% and 14.9%, respectively. This excludes sharp EPS dips in ’16 and ’20. Lines are mostly up and parallel except for a sales decline in ’20 and, in addition to the dips just mentioned, EPS dips in ’15 and ’19. PTPM mostly leads peer and industry averages while ranging from 5.5% in ’20 to 13.2% in ’22 with a last-5-year mean of 9.1%.

Also over the past decade, ROE trails peer and industry averages despite trending higher from 12.9% in ’13 to 27.7% in ’22 with a last-5-year mean of 17.8%. Debt-to-Capital is lower than peer and industry averages despite trending higher from 0% in ’13 to 28.2% in ’22 with a last-5-year mean of 26.0%.

Quick Ratio is 1.15, and Interest Coverage is 26.4. Value Line rates the company B++ for Financial Strength.

With regard to sales growth:

• 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 14.6% contraction and 5.9% growth for ’23 and ’24, respectively (6 analysts).
• Zacks projects YOY 14.2% contraction and 5.9% growth for ’23 and ’24, respectively (3).
• Value Line projects 0.3% annualized growth from ’22-’27.
• CFRA projects contraction of 13.8% YOY and 4.2% per year for ’23 and ’22-’24, respectively (5).

My forecast is consistent with the long-term estimate at zero growth per year.

With regard to EPS growth:

• CNN Business projects contraction of 22.8% YOY and 5.2% per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 8.0%.
• MarketWatch projects contraction of 15.8% and 11.1% per year for ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects growth of 18.9% YOY for ’24 (4).
• Seeking Alpha projects 4-year annualized growth of 20.0%.
• YF projects YOY 36.4% contraction and 12.3% growth for ’23 and ’24, respectively (5), along with 5-year annualized growth of 13.2%.
• Zacks projects YOY 33.7% contraction and 19.1% growth for ’23 and ’24, respectively (4).
• Value Line projects annualized contraction of 2.0% from ’22-’27.
• CFRA projects contraction of 36.7% YOY and 12.9% per year for ’23 and ’22-’24, respectively (6).

I am forecasting conservatively toward the bottom of the long-term-estimate range (mean of four: 9.8%) at 2.0% per year. I will use 2023 Q2 EPS of $5.66/share (annualized) as the initial value rather than ’22 EPS of $7.14.

My Forecast High P/E is 19.0. Over the past decade, high P/E has gone from 25.2 in ’13 up to 56.4 in ’17 then down to 17.6 in ’22 with a last-5-year mean of 27.1. The last-5-year-mean average P/E is 21.9. I am forecasting near the bottom of the range (only ’22 is lower).

My Forecast Low P/E is 9.0. Over the past decade, low P/E has generally trended lower (excluding upside outlier of 40.0 in ’16) from 19.9 in ’13 to 11.8 in ’22 with a last-5-year mean of 16.7. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) of $50.90 is default based on $5.66/share initial value. This is 24.5% less than the previous close (and 52-week low).

Over the past decade, the lowest Payout Ratio is 13.4% in ’22 and the last-5-year mean is 23.4%. I am conservatively forecasting at 13.0%.

These inputs land FWRD in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 12.7%.

PAR (using Forecast Average—not High—P/E) is 6.3%, which is less than I seek for a medium-size company. 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 67 studies done in the past 90 days (my study and 14 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 8.6%, 8.9%, 21.9, 15.1, and 23.9%. I am lower across the board. Value Line’s future average annual P/E of 23.0 is higher than both MS (18.5) and mine (14.0).

MS high / low EPS are $10.12 / $5.26 vs. my $6.25 / $5.66 (per share). My high EPS is lower due to a lower growth rate.

MS LSPF of $71.30 is currently invalid due to the recent decline in stock price. My LSPF is 28.6% less.

My TAR (over 15.0% preferred) is less than the 17.1% from MS.

MOS backing the current study seems robust. My forecast P/E range is [much] lower than Value Line and MS and my forecast growth rates are bottom of the barrel.

I track a few different valuation metrics. PEG is 5.8 per my projected P/E (with the low 2.0% growth rate): significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is significantly undervalued at 0.54. Kim Butcher’s “quick and dirty DCF” prices the stock at 15.5 * [$8.90 – ($1.20 + $1.75)] = $92.23 thereby suggesting the stock to be undervalued by 27.0%

The stock is at the edge of the BUY zone right now. A price under $59/share would likely qualify TAR.

How do I figure?

My inputs forecast a high stock price of $118.70/share. Dividing by the proposed purchase price of $59/share equals 2.01, which amounts to a 5-year annualized return of [ (2.01 ^ (1/5) – 1) * 100] = 15.0%.

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