Werner Enterprises (WERN) and Celadon Group (CGI) Improve Margins to Grow Faster than Peers

September 24, 2012

Werner Enterprises (WERN) and Celadon Group (CGI) are expected to grow at a higher rate than their peers in the trucking segment, a group that for the most part is homogenous and performs along the lines of the current “Goldilocks” environment, says Todd C. Fowler, Director, Transportation/Logistics & Equity Research Analyst at KeyBanc Capital Markets Inc.

“The two names that we have buys on include Werner Enterprises and Celadon Group. Both of those companies historically have been good operators, but they haven’t historically had best-in-class operating margins. They are working on specific things unique to their organizations to improve margins, which should help them outpace their peers in a slower growth environment,” Fowler said. He adds that WERN is currently debt-free, and CGI‘s acquisition is helping it attract and recruit drivers.

Fowler is more cautious, however, on Swift Transportation (SWFT). Although the management team has reduced costs in the past few years, he says SWFT‘s balance sheet is more leveraged relative to the rest of the truckload peer group.

“We don’t think it’s a risk where [Swift Transportation is] going to be in violation of financial covenants or that they’re not going to be able to self-fund their capex requirements, but for an economically sensitive group like the truckload sector, names that have more balance sheet leverage have a tendency to underperform when there is more uncertainty with financial or economic outlooks,” Fowler said.