ARCB Stock Study (8-14-24)

Posted by Mark on October 7, 2024 at 06:25 | Last modified: August 14, 2024 16:23

I recently did a stock study on ArcBest Corp. (ARCB) with a closing price of $106.04.

M* writes:

     > ArcBest Corp is engaged in logistics operations. The company operates
     > in two operating segments, The Asset-Based segment includes
     > the results of operations of ABF Freight System, Inc. and certain
     > other subsidiaries. The segment operations include national, inter-
     > regional, and regional transportation of general commodities through
     > standard, expedited, and guaranteed LTL services. The services
     > including freight transportation related to managed transportation
     > solutions and other services. The Asset-Light segment includes the
     > results of operations of the Company’s service offerings in truckload,
     > ground expedite, dedicated, intermodal, household goods moving,
     > managed transportation, warehousing and distribution, and
     > international freight transportation for air, ocean, and ground.

Over the past 10 years, the medium-size company has grown sales and EPS at annualized rates of 7.3% and 25.0%, respectively. Lines are borderline up and parallel with YOY sales declines in ’19, ’20, and ’23 along with EPS declines in ’15, ’16, ’19, and ’23. Five- and 10-year EPS R^2 are both 0.63 and Value Line gives an Earnings Predictability score of 45.

Over the past decade, PTPM trails peer and industry averages (both appear identical) despite increasing from 2.7% (’14) to 4.2% (’23) with a last-5-year mean of 4.7%. ROE trails peer and industry averages (both appear identical) despite increasing from 8.0% (’14) to 11.1% (’23) with a last-5-year mean of 14.1%. Debt-to-Capital is less than peer and industry averages (both appear identical) despite increasing from 20.4% (’14) to 26.1% (’23) with a last-5-year mean of 29.5%.

Quick Ratio is 1.1 and Interest Coverage is 19.0 per M* who also assigns a Narrow (quantitative) Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 2.8% contraction and 6.3% growth for ’24 and ’25, respectively (based on 11 analysts).
• Zacks projects YOY 2.0% contraction and 7.1% growth for ’24 and ’25, respectively (4 analysts).
• Value Line projects 3.3% annualized growth from ’23-’28.
• CFRA reports ACE of 2.8% YOY contraction and 1.7% growth per year for ’24 and ’23-’25, respectively (11).
• M* reports ACE 2-year annualized growth of 0.4%.

My 1.0% per year forecast is near bottom of the range.

With regard to EPS growth:

• MarketWatch projects 29.0% and 23.7% per year for ’23-’25 and ’23-’26, respectively (based on 12 analysts).
• Nasdaq.com projects 36.8% YOY and 36.5% per year for ’25 and ’24-’26, respectively (7/7/2 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 14.6%.
• YF projects YOY 6.9% contraction and 35.4% growth for ’24 and ’25 (11) and 5-year annualized growth of 12.3%.
• Zacks projects YOY 6.0% contraction and 36.8% growth for ’24 and ’25 (7) and 5-year annualized growth of 12.3%.
• Value Line projects 10.5% annualized growth from ’23-’28.
• CFRA gives ACE growth of 25.3% YOY and 31.3% per year for ’24 and ’23-’25, respectively (11).

My 9.0% per year forecast is below the long-term-estimate range (mean of four: 12.4%). Initial value is 2024 Q2 EPS of $5.27/share (annualized) rather than ’23 EPS of $5.77.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 10.6 in ’22 to 47.8 in ’16 with a last-5-year mean of 18.6 and a last-5-year-mean average P/E of 13.7. I am near bottom of the range (only ’22 is less).

My Forecast Low P/E is 11.0. Over the past decade, low P/E falls from 17.7 (’14) to 11.8 (’23) with a last-5-year mean of 8.8. I am forecasting near bottom of the range [’20 (5.0), ’21 (5.3), ’22 (5.6), and ’17 (7.5) are less].

My Low Stock Price Forecast (LSPF) is $74.00. Default ($58.00) based on initial value given above seems unreasonably low at 45.3% (33.3%) less than previous close (52-week low). My [arbitrary] forecast is 30.2% and 14.8% less, respectively.

Over the past decade, Payout Ratio ranges from 3.8% in ’22 to 45.1% in ’16 with a last-5-year mean 9.8%. I am forecasting below the range at 3.0%.

These inputs land ARCB in the HOLD zone with a U/D ratio of 0.5. Total Annualized Return (TAR) is 3.0%.

PAR (using Forecast Average—not High—P/E) of 0.1% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead although even that is less than the current yield on T-bills.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip this because only one other study has been done over the past 90 days.

Value Line projects an average annual P/E of 15.0 that is greater than mine (13.0). Value Line projects high EPS of $13.00/share versus my $8.11.

My LSPF exceeds the rule-of-thumb [which really isn’t] 20% discount to previous closing price.

MOS is robust because my inputs (and most-recent-quarter initial value) are near/below respective analyst/historical ranges.

With regard to valuation, PEG is 1.1 and 2.1 per Zacks and my projected P/E, respectively: mostly reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] is much higher than I like to see at 1.47 (due to low P/E from ’20-’22).

Projected EPS growth is what drew my attention to this stock, but the hype doesn’t live up to the numbers. Visual inspection is mediocre. Projected sales growth is nowhere near double digits. The company is not an industry leader with regard to management metrics. PTPM is less than the 5-year average. Relative Value is an issue as just discussed. Last but not least, only one other person has given this stock time of day.

Per U/D, ARCB is a BUY under $85/share. BI TAR criterion is met ~ $61/share given a forecast high price ~ $121.

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