Analyst Recommend ABF Stock

ABF Freight Systems Inc. stock is significantly undervalued, according to analysts at Stephens Inc. of Little Rock.

Last month, Stephens added ABF to the list of stocks that the brokerage firm follows regularly after meeting with ABF executives in August. The first recommendation to investors was to buy the company’s stock.

“We feel they’ve done a good job,” says Ginanne Long, an analyst with Stephens who follows the trucking industry. “Everything looks good for the moment.”

Long predicts that the value of ABF stock will increase by 39 percent during the next year, rising from its current $11 a share to more than $15 a share. Long also predicts that the company’s earnings per share will double from 60 cents per share this year to $1.20 per share for 1998.

At the current price, the stock has tripled in value since its lowest price of $4 a share earlier this year.

Trading of ABF stock also has increased dramatically in the last several months, Long says. Last September, trading of the stock varied from 6,000 to 50,000 shares each day. Last month, the stock was trading in the range of 700,000 shares a day.

“Investors are more interested in trucking than they were last year,” she says.

ABF is the largest subsidiary of Arkansas Best Corp. of Fort Smith. ABF is the fourth-largest less-than-truckload carrier in the country and accounts for 75 percent of the company’s total annual revenue. ABF is expected to generate $1.1 billion in revenue for this year and increase by 9 percent to $1.2 billion in 1998.

The company experienced some financial difficulties during the last several years as a result of several major acquisitions. In 1994, the company acquired Clipper Exxpress Co. of Lemont, Ill. and Integrated Distribution Inc. of Fort Smith. The following year, the company acquired WorldWay Corp.

The rapid growth created a number of problems for ABF that affected the company’s earnings and stock performance causing the drop in stock value.

However, Long says she believes the company’s management has resolved the problems and can use the additional resources to increase the company’s profits.

“They have begun to make it all come together,” she says.

ABF reduced the number of distribution centers from 23 to nine, reduced the number of terminals from 348 to 313, reduced the number of tractors from 6,427 to 4,186 and cut the number of employees from 14,500 to 11,600.

The company also sold several subsidiaries acquired during the expansions. In July, the company sold Cardinal Freight Carriers Inc. of Concord, N.C., for $38 million. The sale gave Arkansas Best a pre-tax profit of more than $8 million, which was used to pay company debt. In August, the company sold The Complete Logistics Co. of Los Angeles for $2.5 million.

Jan Davidson, director of investor relations for Arkansas Best, says the interest in the company by Stephens will benefit the company.

“There will be more people who will hear about us,” Davidson says.