ARCBEST CORP /TX/ (ARCB) stock intrinsic value fair value estimate & owner earnings analysis

ArcBest's main business is ABF Freight, a unionized less-than-truckload (LTL) carrier that moves pallet-sized shipments for many customers through a nationwide network of service centers. About 81% of ABF's employees work under the 2023 Teamsters master agreement, which runs through June 30, 2028. That contract lifts wage and benefit rates about 4.2% a year, and ABF pays some of the highest benefit contribution rates in the industry. Around ABF sits an asset-light logistics arm (truckload brokerage, expedited and managed transportation), built mainly from the 2012 Panther acquisition and the 2021 MoLo Solutions purchase. In 2026 it is being merged under the single ArcBest brand. What changed since our previous analysis. ABF pays for many of its tractors and trailers with equipment notes, so that equipment never shows up as a cash purchase. In 2025 it came to $118 million, on top of $115 million bought with cash. Our earlier figures counted only the cash purchases, which overstated what the business earns for its owners. We now count all equipment and capitalized software spending, minus proceeds from selling old equipment. In growth years, we treat a share of that spending as growth rather than upkeep. On this basis, 2025 owner earnings were about $2.16 per share, not the $6.38 shown before, so the previous figures are not comparable. The business itself also changed in July 2026: - It shut down the Vaux Freight Movement System, writing off $50.8 million. - It retired the Panther name ($25.7 million). - It impaired $8.8 million of office leases. - It cut about 2% of positions and plans to close ten smaller ABF service centers. Management expects about $40 million a year of savings. Earnings record. Owner earnings per share on the full-cost basis were: - 2016: -$0.54 - 2017: $0.44 - 2018: $2.28 - 2019: $1.12 - 2020: $3.53 - 2021: $8.74 - 2022: $11.03 - 2023: $0.95 - 2024: -$0.75 - 2025: $2.16 We value the business before its lenders, so we add back cash interest (about $9-12 million a year). The ten-year median of that figure is about $2.60 per share, and the series covers two full freight cycles. Most of the 2021-2022 surge came from pandemic-era freight pricing that has since reversed, so we do not treat it as normal. The write-offs of acquired brands and technology are added back as non-cash charges. The repeated write-offs since 2023 (the MoLo earn-out reversal, Panther and Vaux) show that money spent on acquisitions and technology outside the core LTL network has not earned its keep. We carry that record in the cases rather than in the earnings level. Near-term path. Owner earnings rose from -$0.75 in 2024 to $2.16 in 2025. The first half of 2026 brought: - operating cash flow of $138 million, against $85 million a year earlier; - ABF tonnage per day up 4.9% in the second quarter; - a better ABF operating ratio (90.5% versus 92.8%); - a return to a small profit in asset-light, before write-offs. On that evidence we let year one recover to about $2.90 per share before interest. That is a smaller step up than 2025 had over 2024. Base case: about $1.15 billion for the business, about $3.10 per share a year before interest, flat after year one. No growth is credited. Pricing has risen most years but has been offset by the 4.2% annual labor escalator, and the business has not shown repeatable volume growth. Net debt is about $77 million: $216 million of equipment notes at roughly 5% average rate, less cash and short-term investments of $168 million, keeping $30 million for operations. That leaves about $48 per share. Bear case: about $586 million for the business, or about $23 per share after debt. It includes a freight recession of the depth ABF went through in 2019-2020 and again in 2023-2024, when owner earnings before interest fell from the $1-4 range to below zero. Here that happens in 2028, the same year the Teamsters agreement is up for renewal. Two years are at or below breakeven, and after that earnings recover only to about $1.75 per share. Debt is serviceable throughout: interest runs about $12 million a year against equipment notes that are repaid steadily from the fleet's own cash. Bull case: about $1.85 billion for the business, or about $79 per share. Restructuring savings hold, ABF keeps winning heavier shipments, and one more freight upcycle arrives. It is sized like 2018 or 2021, not 2022, with two years at about $8 per share. After that, earnings settle near $4.75. Margin of safety price: $28. We are not very sure of the earnings level: on the full-cost basis this business has averaged only a few dollars per share across two cycles, with very large swings. What protects shareholders is the balance sheet. Debt is small and mostly secured by trucks, and there is about $1.27 billion of book equity, largely in real estate and equipment. A severe downturn would hurt but would not threaten the company. The things we are most likely to be wrong about are: - whether the 2028 Teamsters contract adds cost faster than ABF can raise prices; - whether the $40 million of savings actually shows up in the numbers; - whether management keeps spending on ventures that later get written off. If all three go badly, the shares are worth about the bear case. Over the holding period, the company pays only a small dividend, about $0.48 a year, plus buybacks. From $28, the bear case implies roughly break-even, and a return of earnings to the middle of their historical range would imply a 20% annual return within a few years.