Small cap trucker Celadon CGI gaped up seven percent and may see continued upward pressure after Stifel upgraded the stock from hold to buy and applied a $26 price target. The upgrade comes after an eight percent sell off in the stock over the past month.
Regarding the industry as a whole, lead analyst John Larkin writes, “Tight supply and demand in the truckload sector, brought on largely by the worsening truck driver shortage, has created a more favorable rate environment. The company has endeavored to push rates up as supply anddemand has tightened. The capacity shortage should become more severe over time as federally mandated safety regulations are implemented and as the driver shortage intensifies.”
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Stifel lists a series of catalysts that it thinks will drive better than expected Celadon growth. These include operating software driving down costs, less competition in the long hall, irregular route market. Additionally, Larkin argues that Celadon has the capability to drop its debt to EBITDA ratio from three to one by late 2016 or early 2017.
The $26 price target is based on 15 times Stifel’s $1.70 estimate for 2016 earnings.
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