Arkansas Best Corporation (NASDAQ:ABFS) Buy, Sell, or Hold?  Why? Is this a good business? Can costs be passed through to customers?  Is growth profitable?

Arkansas Best

Arkansas Best Corporation (NASDAQ:ABFS)’s high labor costs have caused it to struggle over the past few years. Through the recession and even today, competitors with lower labor cost structures have been reducing freight rates to gain market share. But, due to the company’s burdensome contract with its Teamsters, these competitive actions have left the company at a disadvantage. Thus, Ark Best has been in talks with the Teamsters to give it more flexibility, and in late June, the company announced that a new five-year deal is likely to get done. Indeed, while the bulk of the new contract is agreed upon, there are still some supplemental provisions that need to be approved.

Once ratified, Arkansas Best Corporation (NASDAQ:ABFS) expects the combined effect of immediate cost reductions, lower expense increases throughout the contract, and higher flexibility in labor work rules to bring its labor cost structure more in line with its competitors, and to raise profitability. Investor optimism of a new deal has caused the stock price to rally about 150% so far this year.

Earnings in 2013 continue to be held back by high costs. Although first-half revenues increased over 15% year over year, due to improved tonnage levels, Arkansas Best Corporation (NASDAQ:ABFS)’s share loss widened, owing to its current cost structure. This should improve once the new labor contract is finalized.

Emerging, nonasset-based businesses continue to grow. These segments are showing solid revenue, operating profit, and cash flow-gains, and now make up about 23% of the top line. With trailing four-quarter sales of roughly $500 million and strong potential, the company believes these businesses can double to $1 billion by 2015.

We think earnings will rise sharply in 2014. With improving metrics in the freight business and strong momentum in the other segments, we think a top-line gain of 5% is reasonable. Moreover, a new labor deal ought to be in place, which should drastically improve the company’s profitability, leading us to target earnings per share of $1.00.

After the recent momentum, these timely shares are best suited for short-term accounts. At the current quotation, this stock has slightly belowaverage long-term recovery potential.

PDF here Arkansas-Best-Trucking

Arkansas Best Trucking

Annual 2012 Ark Best

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Via CSInvesting