It’s been slow and steady for American truckers as tonnage continues its monthly stairstepping pattern. But according to the American Trucking Association, 2017 will be a banner year for the industry that sees 10.7 billion tons, or roughly 70%-plus of U.S. freight, travel on roads and highways.
Looking at historical data, trucking demand is routinely slow during the second quarter of the year, which has allowed the spotlight to land on Werner Enterprises, Inc. (NASDAQ:WERN) following its second-quarter earnings report. In fact, I think it’s a standout among its peers.
Werner, which was founded in 1956 by its first driver, is a transportation and logistics company that has coverage throughout North America, Asia, Europe, South America, Africa and Australia. It’s among the five largest truckload carriers in the United States, with more than 8,700 drivers at the end of 2016.
While other trucking business execution numbers fell, WERN managed to maintain healthy revenue growth. It also saw much better margins thanks to lower deadhead (empty miles, higher average miles per truck and pricing power in transactional spot markets.
It’s important to note that the company’s interest in maintaining equipment through reinvesting has helped it manage an average truck fleet age of 1.7 years, which significantly decreases capital expenditures and depreciation expenses.
I also like that management is tackling industry problems such as lack of drivers with higher pay, new trucks and other programs.
The wildcard here could come in the form of a trade war with Mexico and other nations. Last year, Werner brought $183 million in revenue from Mexico and $65 million from other foreign countries. I would think there could be some good from adjusting NAFTA for the trucking industry.
From its inception, foreign drivers were supposed to be able to enter the United States with cargo. But between 1994 and 2015 that didn’t happen, as Mexican drivers were forced to drop cargo off at the border and hand it off to American companies or drivers.
I could see that being reinstated in a new deal, which should help U.S. drivers and trucking companies.
Other issues needing to be addressed include regulations, such as rules associated with sleep apnea and digitizing information. I wouldn’t be surprised to see the Trump administration put those things on ice for now as the Teamsters union saw many members cross party lines to vote for Trump.
Bottom Line on WERN Stock
In the end, management seems confident that current trends from demand to pricing will remain in place, and I am confident as well.
The stock has traded well this year — it’s up 15% YTD and more than 30% from a 2017 low in April — and is holding above all major moving averages.
I like the company’s execution and valuation, and as for the industry, it’s on pace to have a strong year.
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