Celadon, USA Truck called best M&A targets as truckers seen consolidating

Stephens argued that amid improving fundamentals and looming capacity tightening within the trucking industry, major operators in the space could be tempted to snap up their undervalued competitors, with the research firm highlighting Celadon (CGI) and USA Truck (USAK) as the most likely targets. STEPHENS SEES CONSOLIDATION ON HORIZON: Stephens analyst Brad Delco argued Monday that consolidation within the truckload space "will occur," with Celadon and USA Truck being the most likely targets. Delco believes M&A "could become a major theme throughout 2H17 and into 2018," explaining that seemingly improving fundamentals as well as expected capacity tightening brought on by regulations around new electronic logging devices "set the stage" for near- to mid-term consolidation. The analyst added that correlation between positive fundamentals and deal appetite "was evident" in late 2013 and 2014 when Heartland Express (HTLD), Knight Transportation (KNX) and Swift (SWFT) all made relative large acquisitions. In evaluating the most attractive takeover names, Delco said key attributes include discounted valuations, minimal insider control, and operational underperformance, which are criteria he said Celadon and USA Truck "almost perfectly" meet, leading him to raise his respective price targets on the stocks to $13 and $10 while predicting takeout ranges of $11-$16 and $9-$13. PRICE ACTION: Shares of Celadon and USA Truck are up roughly 5% and 3%, respectively, in afternoon trading. Other publicly traded companies in the space include Covenant (CVTI), Marten (MRTN), Werner (WERN) and XPO Logistics (XPO).