Ground transportation company Forward Air Corporation FWRD reported Wednesday after the close with higher operating revenues and earnings in the first quarter.
The Analyst
Stifel analyst Bruce Chan upgraded shares of Forward Air from Hold to Buy and increased the price target from $62 to $64.
The Thesis
Despite challenging winter weather and chronic tightness in the owner-operator market, Forward Air delivered a solid result, Chan said in a Thursday note.
"A strong freight backdrop has helped the Expedited LTL division's push into the 3PL market, core linehaul yields have turned the corner and intermodal continues to be a growth engine," the analyst said.
The historically high usage of brokered transportation is Forward Air's biggest challenge and is hurting margins, Chan said. The analyst described the problem as temporary and said it could improve this year.
Some of the company's longer-term strategic initiatives are bearing fruit, Chan said.
"Contract rates are catching up to capacity cost increases and efforts to mitigate mix effects are helping too, in our view."
Forward Air's onetime status as a decent airport-to-airport network "with some mediocre appendages" has evolved to "a more cohesive platform" with opportunities for top-line and earnings growth, Chan said.
Stifel sees even more margin potential if Forward Air trims brokered transportation costs and increases the owner-operator pool.
The Price Action
Forward Air shares have lost about 8 percent year-to-date.
In early trading Thursday, the stock was rallying 7.04 percent to $56.42.
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