Forward Air Corp. (NASDAQ:FWRD) has recently extended its scope by acquiring Omni Logistics. This development may signify positive company growth, but it has also stirred concerns about the significant debt required for the merger and the reduced control for Forward Air shareholders. Although skepticism surrounds this merger, the company is expected to yield potential synergies. Efficient integration of economies of scale and enhanced service offerings could drive long-term growth and savings if executed effectively. The extent to which these synergies outweigh the acquisition costs remains uncertain and may pose a long-term risk to the company’s financial standing.
Forward Air’s growth has recently decelerated compared to 2022. This slowdown can be attributed not only to supply chain disruptions resulting from geopolitical factors but also to reduced consumer expenditure affecting shipping demands for retailers and e-commerce firms. Operating expenses have risen in line with the company’s growth, a common trend in the logistics industry. As the economy expands, a rebound in Forward Air’s revenues is anticipated as the demand for delivered goods continues to rise.
When assessing current events concerning Forward Air, it is essential to discern the long-term implications on the company and its stock price. Despite global political instability and declining revenues, Forward Air remains well-positioned to capitalize on its large-scale and superior execution services in the LTL industry. The stock has undergone a recent downward trajectory due to global political instability and declining revenues. While forecasting an improvement in global political stability may be challenging, truckload weights should rebound in 2024 as the need for logistics grows alongside expanding economies. The substantial debt incurred from acquiring Omni Logistics poses a long-term risk, particularly if the projected synergies fail to materialize or integration issues arise. Successful integration leading to economies of scale could potentially enhance shareholder value in the long run.
While current news, positive or negative, can influence investment decisions, an analysis of the company’s fundamentals and trajectory is crucial.
This article will primarily focus on the company’s long-term fundamentals to provide insight into its viability as an investment. It will also evaluate the company’s valuation relative to its price to determine if Forward Air is currently trading at an advantageous price. Various scenarios will be presented to estimate the company’s future returns. Finally, the author will provide their personal perspective on whether they are inclined to invest in the company and the reasons behind their decision.
Summary of the Company
One efficient method for gaining a holistic understanding of the company’s status is to utilize the BTMA Stock Analyzer’s company rating score. Forward Air’s rating score stands at 74.4 out of 100, indicating robust fundamentals with some reservations in the ROIC and Gross Margin categories.
Before drawing conclusions, a closer examination of individual categories is warranted.
(Source: BTMA Stock Analyzer )
Fundamentals
The share price has trended downward since reaching its peak in 2022. This decline is largely attributed to negative reactions to the Omni Logistics merger. When coupled with global instability in the Red Sea and a decrease in consumer spending, it becomes evident why the stock price has fallen. The revenue generated in 2023 is lower than the peak of 2022. On average, the share price has grown by approximately 20.9% over the past 10 years, equating to a Compound Annual Growth Rate of 2.12%. At the current stock price, Forward Air is trading near its lowest point in the past decade.
(Source: BTMA Stock Analyzer – Price Per Share History)
Earnings
Earnings remained relatively stable until the significant upsurge in 2022, driven by heightened logistics prices amidst supply chain shortages. It is anticipated that earnings will reflect a declining trend akin to the decrease in revenue in 2023. However, once the merger is effectively integrated, and economies of scale are leveraged, a substantial rebound in earnings per share is conceivable.
(Source: BTMA Stock Analyzer – EPS History)
Given that earnings and stock prices do not always offer complete insights, evaluating other factors such as gross margins, return on equity, and return on invested capital is crucial.
Return on Equity
Return on equity has mirrored the earnings trend, influenced by the substantial revenue increase in 2022. Considering the aforementioned macro-level factors impacting the company’s performance, a short-term decline in ROE is expected. It is important to note that the outlier year of 2020 likely experienced a significant decline due to COVID-19. Excluding that year, the company has displayed consistent return on equity, even amidst changing economic conditions. For return on equity (ROE), a 5-year average of 16% or more is sought. In this regard, Forward Air surpasses the specified threshold.