Less-than-truckload shipping specialist SCS Transportation
Transportation companies are leading economic indicators. Any decelerating of volume would be an excellent indication that the economy is weakening. Don't worry, though. SCS's concerns are about volume growth, not declining demand.
Given the news, it appears the market oversteered. Last year, the company earned $0.34 a share -- so even the low end of guidance is a 20% increase in earnings. And, selling for 15 times earnings, the stock is value-priced the way a truck-stop meal is.
Competitors have been delivering double-digit percentage earnings increases since volume started to increase sharply in February. For example, the earnings of net-cash-positive companies Arkansas Best
By contrast, SCS has a moderately high 61% debt-to-equity ratio -- although the company generated free cash flow over the last 12 months. After today's drubbing, the stock is much closer to its 52-week low than its high.
Don't assume competitors with debt loads are down. USF
SCS is a classic case of a stock getting ahead of itself. Today's stock price is reasonable when compared with its peers. For those wanting to invest in this industry's strongly improving fundamentals and some estimated 2005 price-to-earnings multiples close to 10 (hey, good buddy, that's low!), the best place to start would be in Arkansas.
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Fool contributor W.D. Crotty owns stock in Union Pacific and is fond of eating at truck stops. Who would have guessed?