Analysts raise TL, LTL estimates ahead of Q2 earnings season

“We expect less-than-truckload (LTL) operators to lead the way, with our official earnings forecasts for the group 5% above consensus on average,” Harnain said. “Even that may prove conservative, given how these names have historically performed in the early stages of cyclical upturns.”

Less-than-truckload demand is starting to reflect six consecutive months of positive manufacturing data. Intraquarter updates provided by public carriers showed tonnage turned positive for the group in May (on a two-year-stacked comp) following an extended downturn. Tightness across the TL market and heavier shipments from the industrial complex are shaping LTL demand.

Large national carriers continue to garner mid-single-digit contractual rate increases despite a glut of excess door capacity. General rate increases are occurring at an accelerated pace and LTL fuel surcharge programs become more profitable as fuel prices increase. Higher pricing and cost takeouts (including AI-led optimization initiatives) should allow carriers to restore margins.

Harnain noted that the “sharp stock outperformance” (some trucking stocks are up 50% year-to-date) has valuation multiples stretched compared to historical levels. However, she believes improving industry fundamentals and carriers’ ability to generate significant cash flows (to fund dividends and stock buybacks) warrant ownership.

Ravi Shanker, Morgan Stanley (NYSE: MS) analyst, also flagged valuation as a concern in his second-quarter preview.

“We believe stocks have priced in the easy early-cycle gains, with record valuations increasing the risk of greater volatility ahead, making us more selective,” Shanker said this week in a note to clients.

He raised EPS estimates by 5% on average for the transportation companies he follows, but downgraded his industry view to “in-line” from “attractive.” However, Shanker still expects the space to witness “the biggest upcycle ever” in the coming quarters.

“We are more convinced than ever on the strength of the upcycle, though the debate now moves on to how high the record upcycle will peak and how structural the gains are,” Shanker said. “However, it would be naive to ignore significant stock moves and relative valuation dislocations across the group.”

He downgraded Old Dominion Freight Line (NASDAQ: ODFL) to “equal-weight” and both J.B. Hunt Transport Services (NASDAQ: JBHT) and Landstar System (NASDAQ: LSTR) to “underweight.” All three stocks are up over 40% year-to-date. He continues to favor the TLs, select LTLs and the Canadian railroads.

The second-quarter earnings season begins on Wednesday when J.B. Hunt reports results after the market closes.

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