Bottom of the Barrel: A Smoother Ride for Roadway
Even as the market hits the brakes, this week's Bottom of the Barrel keeps on trucking.
This week's highlighted stock, Roadway (ROAD), is in the trucking business. The Akron, Ohio-based company provides less-than-truckload, or LTL, services to companies throughout North America, through both long-haul and regional contracts.
The not-very-exciting trucking business has been a tough road to navigate over the past year. The economic slowdown and higher operating costs have punished Roadway's earnings, which have dropped from a peak of nearly $3 a share in 2000 to an estimated $1.70 this year.
Roadway investors have felt those bumps, too. Since the company stumbled badly in the first quarter with its per-share loss of 9 cents, its stock has tumbled, losing nearly 20% since mid-March. Although that disappointment left some investors wondering if Roadway had engine failure, it's now looking more like a flat tire.
OnrampFew investors question the recession's impact on manufacturing and transportation. The weak domestic manufacturing sector pushed LTL volumes 15% lower in the first quarter vs. 2001 levels. That, in turn, pressured margins and ultimately earnings. "What is clear to us is that the losses in [the first quarter] were due to an unusually poor January for Roadway Express and New Penn," notes Credit Suisse First Boston transportation analyst Gary Yablon. "We believe both divisions have been improving results ever since. From what we can tell, part of the improvement is due to overall trends in the LTL marketplace, and part is due to Roadway improving its own operations." Yablon rates Roadway strong buy with a $42 price target. (The stock closed Tuesday at $32.77.) His firm has provided banking services to the company.
|At a Glance
|Market cap||$605.3 million|
|Avg. daily volume||15,454|
|Company Web site||www.roadwaycorp.com|
|*Based on 2002 estimates, funds from operations
Sources: Market Guide, First Call, company reports, TSC research
OfframpThe economy's importance to a transportation company like Roadway shouldn't be underestimated. With pundits still pontificating about the timing and strength of the recovery, an earnings recovery could be further away than bulls, like Yablon suggests.
|Pedal Down, Trucking Ahead
Economic recovery should fuel Roadway
|Year||Revenue (in millions)||Earnings per share|
Sources: First Call, Credit Suisse First Boston, company reports, TSC research
Passing LaneRoadway may also surprise investors with its ability to improve efficiencies and add to margins as it expands its regional LTL business and increases its commitment to next-day shipments, businesses that are less sensitive to economic cycles. Plus, management remains committed to improving the efficiencies of its hub-and-spoke system, which should positively impact results. Yet, Roadway is largely a bet on a second-half recovery. If that happens, Roadway should conservatively earn about $1.73 a share this year and about $2.85 next. If that is correct, the stock trades at a very reasonable multiple of 11 times 2003 earnings. Also, watch for the company to beat second-quarter consensus and tweak estimates on its second-quarter conference call in early July. That could rekindle interest in the stock. With economic uncertainty as the primary concern, I like Roadway and give it 2 1/2 barrels. (For an explanation of our barrel rating system, see our description.)
BarrelologyNot a lot of good news from the Barrel portfolio last week, as little in the equity universe worked. Investors continue to fret over international safety, corporate chicanery and earnings erosion. Yet a number of solid companies in the portfolio deserve a look, especially at current prices.
|Searching for Opportunity
Lower Prices Create Intriguing Value
|Current rating||Company/ticker||Date of mention||Price 17-Jun||Mention price*||% Change from mention||% Change last week|
|Above average outlook|
|Fidelity National (LION:Nasdaq)||May 8, 2002||$10.35||$10.58||-2.17%||-1.43%|
|NetBank (NTBK:Nasdaq)||Feb. 6, 2002||11.23||13.45||-16.51||-4.59|
|SurModics (SRDX:Nasdaq)||Dec. 19, 2001||30.67||34.60||-11.36||-8.88|
|FPIC Insurance (FPIC:Nasdaq)||Nov. 14, 2001||13.11||12.83||2.18||-1.06|
|Innotrac (INOC:Nasdaq)||June 12, 2002||$4.97||$4.79||3.76%||1.61%|
|Champps Entertainment (CMPP:Nasdaq)||May 29, 2002||11.45||13.01||-11.99en||-0.35|
|Wilsons Leather (WLSN:Nasdaq)||May 22, 2002||14.00||14.96||-6.42||-2.78|
|Trico Marine (TMAR:Nasdaq)||May 1, 2002||7.22||8.25||-12.48||0.28|
|Arch Chemicals (ARJ:NYSE)||April 24, 2002||21.40||22.52||-4.97||-4.72|
|Hines Horticulture (HORT:Nasdaq)||April 17, 2001||4.10||4.75||-13.68||0.00|
|UCBH Holdings (UCBH:Nasdaq)||March 27,2002||37.35||35.65||4.77||-0.74|
|Cost Plus World Markets (CPWM:Nasdaq)||March 6, 2002||31.40||25.83||21.56||-4.38|
|Rare Hospitality Intl. (RARE:Nasdaq)||Feb. 20, 2002||27.32||25.72||6.22||-6.76|
|VitalWorks (VWKS:Nasdaq)||Nov. 21, 2001||7.57||4.30||76.05||-11.77|
|Endocare (ENDO:Nasdaq)||Jan. 23, 2002||12.30||18.21||-32.45||-18.65|
|Coastal Bancorp (CBSA:Nasdaq)||Dec. 12, 2001||30.43||27.84||9.30||1.77|
|Coinstar (CSTR:Nasdaq)||Nov. 7, 2001||25.48||19.96||27.66||-5.63|
|Witness Systems (WITS:Nasdaq)||Oct. 31, 2001||6.15||8.06||-23.70||2.33|
|Hibbett Sports (HIBB:Nasdaq)**||Oct. 24, 2001||27.20||20.04||35.73||3.03|
|Quixote (QUIX:Nasdaq)||Oct. 3, 2001||17.16||21.44||-19.96||-0.87|
|Below average outlook|
|Actrade (ACRT:Nasdaq)||Jan. 30, 2002||$11.24||$20.65||-45.57%||-17.17%|
|Goody's Family Clothing (GDYS:Nasdaq)||Nov. 28, 2001||10.03||4.50||122.89||-3.56|
|Bridgford Foods (BRID:Nasdaq)||Oct. 10, 2001||14.55||13.18||10.39||0.41|
|Quanta Systems (PWR:NYSE)||Jan. 9, 2002||13.16||16.05||-18.01||3.22|
|Bottom of the Barrel Income Portfolio|
|Acadia Realty (AKR:NYSE)||June 5, 2002||$7.61||$7.03||8.25%||1.47%|
|Capital Automotive REIT (CARS:Nasdaq)||April 3, 2002||22.96||22.95||0.04||0.22|
|Laclede Group (LG:NYSE)||March 20, 2002||22.99||23.64||-2.75||-1.37|
|Alexandria Real Estate (ARE:NYSE)||Feb. 13, 2002||47.20||40.25||17.27||0.96|
|Empire District Electric (EDE:NYSE)||Jan. 16, 2002||19.07||21.23||-10.17||-2.00|
|Met-Pro (MPR:NYSE)||Oct. 17, 2001||15.04||11.16||34.77||0.53|
|Integra Bancorp (IBNK:Nasdaq)||Jan. 2, 2002||22.59||20.75||8.87||-0.04|
|Bottom of the Barrel Special Situation Portfolio|
|Luby's (LUB:NYSE)||Feb. 27, 2002||$6.76||$6.22||8.68%||-0.59%|
|*Average price on date of mention.
**Prices adjusted for 3:2 split on Feb. 20, 2002
Sources: Thomson Financial/First Call, TSC research
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