BofA cuts ArcBest stock target to $73, maintains underperform

On Tuesday, BofA Securities made adjustments to its outlook on ArcBest Corp (NASDAQ:ARCB), reducing the price target from the previous $100.00 to $73.00, while keeping an Underperform rating on the stock. The decision followed ArcBest’s mid-first quarter update for 2025, which revealed mixed results in the company’s performance metrics. The stock, currently trading near its 52-week low of $71.57, has declined 20.4% year-to-date. According to InvestingPro analysis, ArcBest appears undervalued at current levels, despite eight analysts recently revising their earnings expectations downward.

ArcBest reported that quarter-to-date volumes were slightly better than expected, but yields fell short of forecasts. The slight improvement in volumes was attributed to a smaller-than-anticipated decline in January tons per day and a strategic shift toward transactional or spot business in January and February to utilize excess capacity. Despite the better volumes, ArcBest experienced a 2% year-over-year decline in less-than-truckload (LTL) tons per day for February, a moderation from the 9.2% drop in January. On average, the quarter-to-date decline was 6%. With revenue of $4.18 billion in the last twelve months and a moderate debt level, InvestingPro data shows the company maintains a solid financial position despite operational challenges.

The company’s LTL revenue per hundredweight (CWT) in February remained flat compared to the previous year, resulting in an average increase of 4% for the quarter to date. This figure was below BofA Securities’ initial forecast of a 6% rise. Excluding fuel surcharges, revenue per CWT saw a mid-single-digit increase. ArcBest also noted that the pricing environment continues to be rational, but the company is experiencing ongoing softness in the industrial economy. This softness is coupled with a decrease in heavier-weight LTL shipments and fewer household good moves, which is attributed to lower truckload prices. The company maintains a P/E ratio of 10.11x, suggesting a relatively attractive valuation compared to industry peers.

ArcBest’s weight per shipment in February exceeded forecasts as the carrier increased transactional business to address its excess network capacity, estimated to be between 10% and 15%. This led to a higher mix of heavier-weight truckload freight. The February LTL weight per shipment declined by 2%, averaging a 5% decrease for the quarter to date.

The company’s LTL revenue per day also fell by 2% year-over-year in February, averaging a 2% decline quarter-to-date. This was a downward revision from the initially forecasted slight increase. Furthermore, ArcBest reiterated its target for the first quarter of 2025 LTL operating ratio to deteriorate by 350 to 400 basis points from the fourth quarter. BofA Securities’ projection aligns with this expectation, forecasting a 360 basis point deterioration to a 95.1% operating ratio.

In other recent news, ArcBest Corporation reported its fourth-quarter 2024 earnings, surpassing analysts’ expectations for earnings per share (EPS) but falling short on revenue forecasts. The company achieved an EPS of $1.33, exceeding the forecasted $1.09, while reporting a revenue of $1 billion, slightly below the anticipated $1.01 billion. This performance reflects a broader industry challenge, with an 8% year-over-year revenue decline. Despite these challenges, ArcBest maintained a strong service reputation, highlighted by a 55% growth in its sales pipeline. In another development, Morgan Stanley (NYSE:MS) maintained an Overweight rating on ArcBest but reduced the price target from $160 to $145, citing effective cost control measures that led to a notable earnings beat. The firm adjusted its earnings per share forecasts for ArcBest for fiscal years 2025, 2026, and 2027, reflecting a cautious outlook on market conditions. Additionally, ArcBest announced an amendment to its bylaws to introduce a "proxy access" provision, allowing significant stockholder participation in the nomination of directors. This move is part of ArcBest’s efforts to align its corporate governance practices with shareholder interests.

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