On Monday, TD Cowen has downgraded ArcBest Corp (NASDAQ:ARCB) from a "Buy" to a "Hold" rating, while also lowering the price target to $114 from the previous $131.
"We downgrade shares as tonnage and pricing growth come into question amid recent industry channel checks," said the analysts.
ArcBest, a freight and logistics company, has been focusing on shedding transactional freight over the past year. However, the firm notes that this strategy comes at a time when industrial demand is showing signs of weakening. Furthermore, competitors are catching up, with carriers like Yellow (OTC:YELLQ) making gains, and the general trend in pricing is decelerating.
The firm's analysis suggests that ArcBest is likely to move less freight in 2024 compared to its pre-COVID levels. This projection is influential in the decision to adjust the stock's rating and price target. The firm also anticipates that the consensus for 2025 will likely trend downwards from current expectations.
The downgrade reflects the analyst's revised expectations for ArcBest's performance in the near to medium term. With the updated price target of $114, the firm signals a more cautious stance on the stock's potential for growth amidst the current industry challenges.
In other recent news, ArcBest's Asset-Based segment reported a drop in daily tonnage but a rise in billed revenue per hundredweight. However, the Asset-Light segment saw a decrease in revenue. The company also announced a 5.9% general rate increase for less-than-truckload services, demonstrating its strategic approach to pricing and cost management.
The company's shares have been the subject of several analyst reports. Citi initiated coverage with a Neutral rating, reflecting investor skepticism about ArcBest's growth potential. BofA Securities and Stifel also adjusted their price targets for similar reasons.
ArcBest has also announced a significant leadership transition. Michael Newcity, Chief Innovation Officer, is set to retire in December 2024, with Chief Strategy Officer Dennis Anderson slated to assume his responsibilities. This transition is part of ArcBest's succession planning, aimed at ensuring continued growth and innovation.
Finally, ArcBest plans to invest between $325 million and $375 million in 2024 and has already returned $37 million to shareholders in the first half of 2024 through share buybacks and dividends.
InvestingPro Insights
Recent InvestingPro data provides additional context to TD Cowen's downgrade of ArcBest Corp (NASDAQ:ARCB). The company's market cap stands at $2.51 billion, with a P/E ratio of 19.55, suggesting a moderate valuation. However, ArcBest's revenue growth has slowed, with a 6.81% decline in the last twelve months as of Q2 2024, aligning with TD Cowen's concerns about weakening industrial demand.
InvestingPro Tips highlight that ArcBest "suffers from weak gross profit margins," which is reflected in the data showing a gross profit margin of 9.51% for the same period. This could be a factor in the company's ability to navigate the challenging industry landscape described in the article.
On a positive note, an InvestingPro Tip indicates that ArcBest "has maintained dividend payments for 22 consecutive years," demonstrating financial stability despite industry headwinds. Additionally, the company is "profitable over the last twelve months," with a diluted EPS of $5.27.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for ArcBest, providing deeper insights into the company's financial health and market position.
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