Vaux Vision Will Advance Freight Measurement Accuracy And Efficiency

Key Takeaways

• Focus on operational efficiency and innovative solutions is set to boost productivity and reduce costs, enhancing net margins.
  
• Strategic cost management and managed transportation solutions aim to improve revenue, service excellence, and operating income.
  
• Soft industrial production and changing trade policies challenge ArcBest's freight environment, impacting revenue and earnings, with pressure on profitability across its segments.

Catalysts

An integrated logistics company, provides ground, air, and ocean transportation solutions worldwide.

• ArcBest is focusing on driving operational efficiency and leveraging innovative solutions like Vaux Vision, a 3D perception technology that improves freight measurement accuracy and transparency. This is expected to enhance productivity and reduce costs, positively impacting net margins.
  
• The company's initiative in Dynamic pricing and increased digital engagement with customers has led to a 50% increase in revenue per shipment since 2020. This growth in revenue per shipment is likely to increase overall revenue and profitability as more shipments are selectively optimized for profitability.
  
• ArcBest's managed transportation solutions are experiencing double-digit growth, with tailored solutions for customers that enhance their supply chain efficiency. This is poised to boost both revenue and service excellence, contributing to higher net margins.
  
• Strategic cost management initiatives, including cost reduction projects and workflow optimization, have led to significant savings and improved decision-making processes. These efforts should help reduce operating expenses, positively affecting operating income and net margins.
  
• ArcBest's ongoing investments in real estate and equipment are expected to drive long-term efficiencies and service quality improvements, supporting sustained revenue growth and potentially improving operating ratios as the company scales its capacity to meet future demand.

ArcBest Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ArcBest's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.4% today to 3.7% in 3 years time.
• Analysts expect earnings to reach $179.1 million (and earnings per share of $8.59) by about April 2028, down from $179.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 7.3x today. This future PE is lower than the current PE for the US Transportation industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 1.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

ArcBest Future Earnings Per Share Growth

Risks

• Soft industrial production and changing trade policies have led to challenges in the freight environment, impacting revenue and potentially causing volatility in earnings.
  
• Consolidated revenue has decreased by 7% year-over-year, primarily due to a 27% decrease in operating income in the Asset-Based segment and a 9% drop in daily revenue in the Asset-Light segment, affecting overall profitability and net margins.
  
• The ongoing decline in weight per shipment, driven by industrial weakness and shifts to the truckload market, alongside reduced household goods movement, could continue to pressure revenue and operating ratios.
  
• Despite pricing improvements, decreasing fuel costs have partially offset revenue gains, and anticipated price declines in certain verticals, such as manufacturing, may pressure future earnings and margins.
  
• Strategic reductions in volume and potential non-GAAP operating losses in the Asset-Light segment due to soft market conditions suggest challenges in achieving significant profitability improvements in the near term.

Valuation

• The analysts have a consensus price target of $91.417 for ArcBest based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $66.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $179.1 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $56.73, the analyst price target of $91.42 is 37.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.