CHICAGO — Why are today’s trucking stocks priced so low?
One analyst says they are paying for the failed expectations of the mid-90s, perhaps undeservedly. But he indicated that conditions may be right for them to soar again.
Faced with strong demand and a shortage of equipment in 1994, trucking companies boosted freight rates and scrambled to order more trucks. Many investors became convinced that the historically cyclical trucking industry was entering a consolidation phase in which revenue and profits would grow rapidly and consistently. Investors bid up the price of trucking stocks, said Anthony P. Gallo, speaking during the National Accounting and Finance Council’s annual conference.
In 1995, the Federal Reserve Bank, concerned about inflation, raised interest rates. Manufacturing and retail sales slowed, and suddenly trucking companies had too much capacity. Rates and profits fell sharply, recalled Gallo, a senior equity analyst for the transportation group at Deutsche Bank Alex. Brown (formerly BT Alex. Brown), an investment banking firm in Baltimore.
The turn of events did not go unnoticed on Wall Street. Trucking stocks were beaten down, as large institutional investors moved money into less-volatile sectors.
“There was a dramatic revaluation of trucking stocks,” Gallo said. “The earnings pattern was interrupted. There was a change in the earnings assumptions.”
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